RUSSIAN PRESIDENT Dmitry Medvedev yesterday ordered the government to prepare for a continuation of the economic crisis into 2010, delivering a markedly pessimistic view of the country’s economy and mandating wide-ranging budget cuts until now put on hold.
In an address to top government officials on the budget priorities until 2012, the president sided with the fiscal conservatives in an economic debate that has been raging within the Russian government since last autumn over how much to cut spending in the face of the crisis.
“We all understand what a difficult situation our country, our economy, is in. The global crisis is far from over,” he said, adding that he expected a worse fall in economic production this year than the initial forecast of -2.2 per cent of gross domestic product. He did not elaborate, but GDP in the first quarter fell 9.5 per cent compared with the same period last year.
One of the 10 priorities was “transfer to a strict regime of saving budget resources”.
This year Russia will run its first budget deficit in the decade, projected at 7.4 per cent of GDP, which is to be funded almost entirely out of official reserves. Yesterday’s forecasts, which assume a price of oil of $50 per barrel in 2010, put the budget deficit of 5 per cent of GDP in 2010, falling to 3 per cent in 2011.
Mr Medvedev’s remarks indicate the consensus view on the economy has been getting more bearish, in line with that of minister for finance Alexei Kudrin who sees the crisis lasting longer than initial forecasts, which saw growth returning by the end of 2009. Many politicians, including prime minister Vladimir Putin, have until recently been more bullish.
Believing deep budget cuts could needlessly harm economic growth and sow political instability, they prefer to fund budget deficits out of reserves. – (Copyright The Financial Times Ltd 2009)