Strong rouble may push Russia into borrowing spree this year

The rouble is up 26 per cent against the dollar So far this year, but the currency is also I2 per cent stronger than the level assumed in this year’s budget

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A strong rouble and low oil prices are set to widen Russia's budget deficit this year, adding to the pressure on it from military spending and forcing the government to borrow more than it planned or tap its remaining fiscal reserves, analysts say.'The rouble is up 26 per cent against the dollar so far this year as relations with the US thaw out and the potential for an end to the conflict in Ukraine grows. But the currency is also 12 per cent stronger than the level assumed in this year's budget.

"A strong rouble is a blessing for the people but a pain for the budget. This is because we receive oil and gas revenues in foreign currency, which are then converted into roubles," said economist Evgeny Kogan.

If the currency stays near 81 per dollar all year, Kogan said the deficit would expand to 1.5 trillion roubles more than the currently planned 1.2 trillion.

While the cabinet had aimed to narrow the budget gap to 0.5 per cent of gross domestic product this year, the early signs are not good: In the first two months of the year, the deficit ballooned to 1.3 per cent.

Furthermore, while recent US-Russia talks and telephone conversations between the two nations' presidents have raised hopes for peace they have not yet led to a ceasefire.