Russia Will Finance Ukraine’s Budget Deficit

In order to fulfill the agreements reached during the meeting of the President of Russia, D. A. Medvedev, and President of Ukraine, V. Yanukovich, on the discount for the Russian gas at the rate of USD 100, the price being USD 330 per 1 thousand cu m, the price for gas for Ukraine in the 2nd quarter 2010 will make USD 236 per 1 thousand cu m, taking into account the discount. 


The fulfillment of this discount envisages the abolition of the export duty rates for gas export to Ukraine that were earlier in effect, which results in the loss of the budget earnings of USD 3 billion that were taken into account when planning the budget. The increase in federal budget deficit resulting from this political decision will, as it is expected, be covered at the expense of the Reserve Fund in 2010. 

At the same time the volume of accumulated reserves in oil and gas sector will likely to get exhausted by the end of the current year, which means that it is high time the search for the sources of compensation of the lost federal budget earnings for the forthcoming years taking into consideration a possible long-term nature of such a financial aid to Ukraine’s budget from Russia was started. For instance, in 2011 the federal budget will lose approximately USD 4 billion, and how much this aid will cost Russia in the future time will show. 

The most probable sources for deficit coverage are external loans and privatization of the state property. For instance, the process of sale of 28 investment attracting enterprises of transportation sector should be accelerated so that the earnings from their sale (according to preliminary estimations, RUR 54 billion is planned to get) could be used for deficit coverage as soon as 2011. 

I.A. Sokolov, PhD, Head of the Department of Budget Policy