Macroeconomic Role of Russia's Oil and Gas Sector

The paper analyzes, first, the contribution of hydrocarbon sector to GDP, export proceeds, and budget revenues, and, second, the impact of volatility of international oil prices on the Russian economy. It is found that the importance of the oil and gas sector for the Russian economy adjusted for changes in oil prices is steadily declining since 2000. The potential impact of hydrocarbon prices volatility on the Russian monetary situation is weakening. It is demonstrated that 6% to 11% of GDP is shifted from the oil and gas sector to the trade sector via transfer pricing mechanism. Taking this fact into account alters crucially estimated tax burden for the hydrocarbon sector: it is found to be below that for the rest of the industry until 2001, and close to the latter subsequently. The contribution of oil and gas taxes to the budget does not differ much from the share of this sector in the GDP. Recent increase in the share of windfall oil revenues taken to the budget has not been supported with adequate fiscal policies. Current fiscal situation remains robust, but continuation of these trends may make the budget vulnerable to external volatility. The oil sector has played a critical role in the recent economic growth. Still the effect of favorable terms of trade on growth has not been significant, as its possible impact has been damped down with measures taken by the monetary authorities to smooth the effect of external volatility.