(Bloomberg) -- Russia is planning for oil prices at $20 a barrel this year and will ramp up borrowing in rubles to make up for a budget shortfall.
The government will add 1 trillion-1.5 trillion rubles ($13 billion-19 billion) to its borrowing plan of about 2.3 trillion rubles for this year, according to people familiar with discussions who asked not to be named because discussions are ongoing. The Finance Ministry estimates budget losses will total 3 trillion-4 trillion rubles this year, the people said.
A nationwide shutdown starting this week is adding an extra strain on the economy of the world’s biggest energy exporter as policy makers grapple with the drop in global oil demand. Urals crude, Russia’s export blend, is now trading firmly below $20 a barrel, a level which could equate to a budget deficit of 2% of gross domestic product this year, according to Citigroup Inc (NYSE:C).
The Finance Ministry didn’t immediately respond to request for comment.
Russia’s ruble borrowing costs have jumped due to a wider market selloff, prompting the Finance Ministry to put its weekly bond auctions on hold at the start of March. It’s not yet clear when auctions will start back up again, one of the people said.
Yields on 10-year government OFZ notes have climbed 53 basis points to 6.9% since the beginning of the year. The ruble has plunged more than 20% against the dollar.
Oil soared late Thursday after U.S. President Donald Trump said Saudi Arabia and Russia would make major output cuts, though the producers haven’t yet confirmed they will be making curbs.
The Finance Ministry will continue using its wealth fund to cover missing energy revenue in the budget, according to the people familiar with the discussions. The ministry has been selling foreign currency to support the ruble since last month.
A government forecast being discussed last month estimated a 5%-10% contraction in the Russian economy this year in the “worst-case scenario” of a short lockdown. Those projections are now being reassessed after the nationwide shutdown was extended Thursday through end of April.
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