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Surplus cushions Russia against oil price slide

MOSCOW, Jan 10 (Reuters) - A higher than expected budget surplus will help Russia to cushion its oil-dependent economy against a decline in oil prices in 2003, when its foreign debt payments peak, economists said on Friday.

Russia ended 2002 with a budget surplus of 154.3 billion roubles ($4.84 billion) representing 1.4 percent of gross domestic product, beating December's forecast of one percent of GDP but short of initial 1.6 percent target.

"Higher oil prices in the second half of the year contributed to higher revenues but the major reason was the cut in spending not related to debt repayments," Anton Stroutchenevski, an analyst at Troika Dialog said.

According to the ministry's preliminary data, budget revenues last year came to 2.2 trillion roubles, beating its revised 2003 target by 2.6 percent, while spending was 2.04 trillion roubles, 3.12 percent short of its adjusted plan.

"The increase in the surplus means that the federal reserve fund will be higher than was initially planned. According to our estimates it will be least 250 billion roubles," Stroutchenevski said, adding the boost would come from windfall repayment of unused funds from budget-financed organisations.

Russia has been setting aside part of its budget surplus and privatisation proceeds for a special reserve fund, designed to smooth over the country's foreign debt repayment peak of about $17 billion in 2003.

The ministry had said the fund had 197 billion roubles at the end of last year, in line with its initial target.

But their estimate did not take into account about $2.6 billion proceeds from the sale of state owned stakes in oil firms Slavneft and LUKOIL (LKOH.RTS) that should reach the fund in 2003.

David Ross, an analyst at London-based economic consultancy 4cast, said Russia, the world's second largest oil exporter, could have about eight bilion dollars in the fund to cushion volatile global oil prices.

"The fact that they were sucessful in selling those two oil firms has offered a bit of a hedge against falling oil prices this year, if we see the war in Iraq concluded and oil prices come down on the back of that," Ross said.

Russia's 2003 budget contains a pessimistic estimate that the price for Russia's main Urals oil export blend will average $18.5 per barrel with optimistic estimate set at $21.5.

Every dollar fall in the price of a barrel of oil lops $1.0 billion off Russia's revenues.

Russia's 2003 budget stipulates a surplus of 72.15 billion roubles, or 0.6 percent of GDP, and the government recently announced their plans to raise that to 1.5 and 1.7 percent in 2004 and 2005 respectively to maintain financial stability.

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