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25 May, 2009 18:18

‘Tough steps’ required on Government spending

Russia has only just completed this year's federal budget. Now, against a shaky economic outlook, it's looking to 2010, with President Dmitry Medvedev calling for "tough steps" to control government spending.

Cut spending – save money – That’s the message from President Medvedev in his annual budget address.

“We should sensibly limit government spending, the budget should be neither the source of financial instability, nor add to the decline of business activity in the country. We all understand that our country and economy is in a complicated situation.”

Social spending remains a sacred cow but Evgeny Nadorshin Chief Economist at Trust Bank expects a serious cut in long-term federal programs.

“We definitely put aside our long-term ambitious development targets. This is not the primary target of the Russian authorities now, although it is mentioned in the federal budget address that we should keep them in mind, and we should stick to them. But unfortunately I don't see a lot of spare money we can invest in these projects.”

With the crisis far from over the President prefers to stick to the most conservative outlook for oil prices. Russia’s finance ministry talks about $50 per barrel.

According to its three-year forecast, the average annual oil price won’t get significantly higher – a maximum $52 per barrel – bringing little extra cash to the budget.

Russia will spend all the money from the reserve fund in covering a 5% budget deficit next year. To finance any future deficit Aleksey Kudrin plans to Borrow abroad.

Russia’s finance minister expects to raise up to $10 billion on the financial markets next year without turning to the International Monetary Fund.