OREANDA-NEWS. April 28, 2010. The Finance Ministry forecasts 2011 fiscal revenues at RUB173bn, or 0.4% GDP below the figure which is envisaged in the budget, according to a Vedomosti report this morning. Additional spending commitments – should they include a 7.5% increase in public and state sectors' salaries that was recently suggested by PM Putin – could cost the budget over RUB400bn., reported the press-centre of OTKRITIE FC.

View: The lower fiscal revenues are primarily the result of recent decisions on gas export duties for Ukraine and an extension of the zero customs duty for Eastern Siberian oil. We are much more concerned with the potential indexation of salaries in the public and state sectors, which alone could cost the budget over RUB400bn.

The pressure on the increase of wages was expected as pensions in 2010 are rising by about 46%, and an increase in public salaries was proscribed. Nevertheless, we believe such an increase could damage the long-term stability of the budget, since salary increases are generally irreversible. Additionally, to implement this, the government might have to curtail other spending. In our view, this will likely come at the expense of  investment programs, which could be a further negative development for growth prospects. Otherwise, the 2011 fiscal deficit could be 1% of GDP higher than current budget assumptions.