UPDATE: Russia To Plug 2009 Budget Gap With Oil Wealth

MOSCOW --Russia Wednesday said it would spend more than $35 billion of its oil wealth to plug a likely hole in next year's budget resulting from the sharp decline in oil prices and tax cuts from an economic stimulus program.

Finance Minister Alexei Kudrin said the government would draw more than 1 trillion rubles ($36.57 billion) from its Reserve Fund to maintain public spending through the country's worst financial crisis in 10 years.

"We've created a serious safety cushion for the budget, which will work for more than three years," the Interfax news agency cited Kudrin as saying.

The Kremlin remains eager to push ahead with a huge overhaul of the country's delapidated Soviet-era roads and hospitals, even though economists have halved Russia's growth forecasts to around 3% amid a freeze in credit markets and lower prices for key exports like oil and metals.

In a televised speech last week, Prime Minister Vladimir Putin reaffirmed his commitment to long-term infrastructure investment projects - as well as other social and defense sector initiatives - all part of his vision for the country through 2020.

Russia may need RUB500 billion to offset lower global oil prices next year, as its budget for that year predicts an average price of $95 a barrel, according to government estimates.

Putin has also outlined a package of tax cuts aimed at boosting economic activity as growth slows. The measures, which include slashing corporate profit tax to 20% from 24%, will add another RUB500 billion in costs to the budget.

The Reserve Fund was specifically designed to bridge budget deficits during difficult times and currently contains around $130 billion.

It's one of two funds that now house windfall oil revenue accrued during the last four years, the other being the National Welfare Fund, which contains almost $50 billion primarily to support the pension system.

In the first nine months of 2008, Russia notched up a budget surplus of more than $90 billion as oil prices soared to record levels during the summer.

Officials have said next year's budget will be balanced if the oil price averages $60 a barrel. But Kudrin said earlier this month that he expects an average of just $50 a barrel.

"If oil averages below $50, I think the government may have to draw down even more cash," said Vladimir Osakovsky, an economist at UniCredit in Moscow.

An average oil price below $50 a barrel is a forecast that's gaining popularity among economists and would also eat away at Russia's current account.

The World Bank has said falling oil prices would more than halve Russia's current-account surplus to around $40 billion in 2009 from $100 billion this year.

Around 1344 GMT, January light sweet crude futures on the New York Mercantile Exchange were trading up $1.50 on the day at $52.27 a barrel.

Finance Ministry Web site: www.minfin.ru

-By Andrew Langley, Dow Jones Newswires; +7 495 937 8445; andrew.langley@dowjones.com