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9 Sep, 2009 06:59

Deficit set for scrutiny as budget comes up for debate

The Russian government is to present its 3-year budget for parliamentary approval, with the budget deficit in focus. This years deficit of 8% of forecast to come down, but by how much and when is under debate.

Budget spending is shifting from investment to social spending, but removing stimulus measures could mean the deficit continues for longer than expected. Moreover, the government's launching pension reforms, using the Welfare fund in 2010, when the budget deficit is likely to be around 7%.

However, Evgeny Nadorshin, Chief Economist at Trust Bank is skeptical, saying this socially oriented budget won’t help the economy out.

“There are infrastructural spending, although there are spending devoted to different economic issues and even words about innovative development and stimulus. Frankly speaking, social issues dominate, and dominate not only in federal budget, but also dominate wording, which accompany federal budget introduction. In my opinion, it’s not a kind of anti crisis budget, this is not a stimulus package for economy to perform well.”

The government has scheduled a borrowing programme in domestic and foreign markets to cover the budget gap, splitting borrowings evenly between them. If the economy stabilizes, the amount of borrowings will fall.

Talking on the new budget, Prime Minister Vladimir Putin, was upbeat, forecasting better than expected revenues and stressing the importance of the stable macroeconomy.

Since the economy is gradually recovering and we are emerging from the production downturn, we’ll be able to adjust some figures in the budget. For instance, we can expect higher revenues than we planned earlier. We should also remember to maintain macroeconomic stability, keep the deficit at the acceptable level, borrow less and sustain the reserves we have.”

If the budget deficit is not addressed, the central bank will have to continue injecting liquidity into the economy, which would boost inflation, harm the Rouble and leave the problem of the federal budget deficit for future generations.