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9 Sep, 2010 08:25

Further stimulus poses outlays questions

With major economies mulling the need for further stimulus measures in the face of an economic recovery which looks too weak to boost jobs, analysts are asking where the money will come from.

Miserly GDP and employment figures from the US, housing data little short of calamitous, and heightened debt concerns. The economic rebound in the world’s largest economy is tepid, at best, and the President is openly mulling further stimulus measures – another $180 billion worth.

But despite the fact that other developed economies – from most of the EU, to Japan – are doing little better, debt fears, with nations like the US and UK amongst the most heavily indebted developed economies in the world, mean that there is increasing concern about any further outlays. The ECB, Bank of England and German Finance department all say it's time to tighten belts.

Steven Meehan, Co-CEO, UBS Russia and CIS, says Russia is likely to see increased spending at a government level, but he also thinks Russia will see increased private investment to add to the outlook.

“For the next few years, we see increased spending. We see a combination of private increased spending. We believe – I believe – that there’ll be private capital will return to Russia in the next 12 months, in a meaningful manner. Secondly, we do see increased spending from the government as well. A combination of the two should be the base for what we believe to be five to six per cent growth over the medium term.”

The government plans to borrow more foreign money this year – but also spend the remains of the stabilization fund. Domestic borrowing already accounts for over $60 million and Russia will be ready to issue eurobonds in November according to Finance Minister, Alexey Kudrin

“We’ll be borrowing a lot. In any case a deficit of 3.6 per cent is anticipated next year. We also forecast the 2012 deficit will be 3.1, and 2.9 for 2013. The current situation has forced us to borrow and we will be spending from the Reserve Fund next year.”

The reserve fund has shrunk to a third its former size. When that runs out the government will be looking to either boost borrowing, increase taxation, or privatise assets to plug the budget deficit. Reducing outlays is expected to take a back seat while major election campaigns are underway over the coming years.