OREANDA-NEWS. February 5, 2009. Inflation in Russia will rise in 1H 2009 due to the devaluation effect for the whole year, Finance Minister Alexei Kudrin said at a meeting with businessmen Wednesday. “We expect the devaluation effect to show up in the next six months and inflation will spike. Then, as we reach new conditions, inflation will start to ease under the pressure of monetary factors”, the Russian minister said. He reiterated that the government projects inflation at 13% in 2009. “I believe that there are risks of higher inflation, but it is still too early to speak of revising the forecast upward”, he said. He voiced hope that by the end of 2009 the 13% target would be achieved. According to him, the parameters of the 2009 federal budget will not see any major changes after a number of expenses are reduced, since these expenses will be redistributed for anti-crisis measures. “Overall, the budget parameters will not change dramatically. This is attributable to the fact that the resources allocated for the anti-crisis measures will be redistributed from other programs rather than provided additionally”, Kudrin said and added that this concerns the new anti-crisis measures which were and will be announced by the government.

The budget deficit in 2009 will be almost completely covered by the resources of the Reserve Fund, with no external loans provided. “Russia has not yet adopted a decision on borrowings on foreign markets and the deficit which will occur in 2009 will be largely covered by reserves”, Kudrin said. The resources of the Reserve Fund will be used to finance the budget deficit in the form of issues. “Obviously, such capital inflow will be used in the form of issues and should be limited. Therefore, the budget deficit should also be limited”, Kudrin said.

He noted that the Bank of Russia disapproved of the use of Reserve Fund resources to finance the budget deficit. According to joint estimates of the Bank of Russia and the government, use of the funds will help maintain the key parameters and, in particular, inflation at 13%. Kudrin noted that as of February 1, 2009, the total amount of the Reserve Fund and the National Welfare Fund exceeded USD 227 nm. According to the minister, taking into account the reserve funds, the national budget is protected for 2-3 years, which makes it possible to perform all social obligations. Kudrin also said that Russia could borrow funds on foreign markets as and when conditions improve. He also pointed out that the amount of state debt is currently below 9% of GDP. According to Kudrin, Russia does not intend to impose limitations on capital flow.”