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3 Mar, 2009 07:54

Kudrin looks for rebound after GDP slide in 2009

The government is looking for a quick turnaround after forecasting negative GDP growth for 2009, and that the budget deficit will be reigned in. But analysts believe this will provide a challenge in the short term.

From recession to growth in just a year. After forecasting a fall of more than 2% over the course of this year Aleksey Kudrin expects the Russian economy to post 3% GDP growth for 2010.

Speaking at the Global Investment Forum in Moscow Kudrin promised not to cut Government spending this year, despite an 8% budget deficit.

“Russia has one of the most massive fiscal stimulus programmes in Europe. The level of spending is going up this year despite lower revenues. We will cut spending in 2010 and thus cut the budget deficit to 5% next year.”

Experts generally agree on the need for more state spending, as it's the only near-term source of capital. Government investment is crucial not only to survive the crisis but to lay the foundations for long-term recovery. Martin Walker, Senior Director at A.T. Kearney, believes diversification is essential.

“Russia has to avoid the oil curse. It has to avoid the Dutch disease of putting all of its eggs into the energy basket. Russia simply has to start investing in other parts of the economy – in IT, in Nanotechnology, in other areas that are going to be the Russia of the future.”

The move to a more diversified economy has been the government's aim in the last eight years of growth. However, experts say little was done to realise this. And now, falling ouput is creating more barriers to diversification, according to Kevin Dougherty, Portfolio Manager at Pharos Financial Group.

“One thing they can do is through tax policy make some changes. Those are very difficult changes to make. The government has been trying to lower VAT for example. What that does is put more tax burden on energy companies, and of course they are having a difficult time right now, as well, because of the low world oil price.”

Kudrin said Russian firms are already enjoying $27 billion in tax breaks, and the budget deficit leaves few opportunities for further cuts. Moreover, the Finance ministry has urged the federal tax service to look at how it might tighten up on collecting revenues.