OREANDA-NEWS. December 03, 2009. Deputy Minister for Economic Development Andrey Klepach asserts that on the on the back of US65-71/bbl oil prices in 2010-2012, Russia’s GDP will rise 2.5-3% in 2010 (official forecast, 1.6%) and +3.4% in 2011 (3.0% official forecast). This would bring the 2010 federal fiscal deficit down to 6.2-6.5% GDP from 6.9%. New forecasts will be submitted to the government by 10 December, reported the press-centre of OTKRITIE FC.

View: The chief application of official forecasts is as a guide for the budgeting process. Federal budget expenditures in recent years have grown at a very rapid pace in nominal ruble terms: +40% YoY in 2007, +26% YoY in 2008, with +28% planned for 2009. With no growth envisaged for 2010, and improved revenue expectations, the temptation to spend more could translate into actual funding commitments.

The key concern here is that in new forecasts the price of oil is less conservative. Higher budget revenues may increase pressure on the spending side, which will render fiscal positions more vulnerable, especially if those commitments are difficult to revise even in future budgets. One of the most controversial measures In the approved version of next year’s budget is the moratorium on increasing public sector salaries (even though pensions are set to rise 49% YoY). We think that the more optimistic figures from the ministry will increase pressure to revise this decision.