13 Jul 2009 14:21

Budget deficit to fall to 4% of GDP in 2011, 3% in 2012 with oil at $56-$57

MOSCOW. July 13 (Interfax) - Russia's federal budget deficit might decline to 4% of GDP in 2011 and 3% in 2012 according to the moderate optimistic economic growth scenario contained in materials prepared for a session of the government presidium on Monday.

The scenario, which projects the 2010 budget deficit to equal 6.5% of GDP, was used as the basis for drawing up the parameters of the federal budget in 2010-2012, the materials say. It was reported earlier that two other scenarios - "conservative" and "oil" - have also been drawn up.

The optimistic scenario projects the economy to revive as a result of using state funds to maintain the investment programs of the state monopolies and support demand.

GDP would rise 1% in 2010, 2.6% in 2011 and 3.8% in 2012. Last week the Economic Development Ministry estimated that GDP growth in 2011-2012 would be 0.2 percentage points higher (2.8% and 4% respectively). Rising state demand and expanded bank lending will spur growth in private investment and consumer demand.

The scenario includes conservative assumptions for external conditions, particularly the price of Urals blend crude oil, which will average $55 per barrel in 2010, $56 in 2011 and $57 in 2012.

Those assumptions are also used in the conservative scenario, which foresees economic stagnation due to a persisting decline in investment, including state investment, and weak growth in consumer demand and inventories. That scenario calls for GDP to rise 0.1% in 2010, 1.5% in 2011 and 3.2% in 2012.

The conservative scenario provides for tough fiscal policy that will keep the deficit in 2010 to 5.5% of GDP, declining further the 3% and then 2% in 2011 and 2012 respectively. But that fiscal restraint will produce a steep drop in state demand and investment.

The moderate optimistic and conservative scenarios "differ primarily in assumptions concerning the scale of state support in priority areas of socioeconomic development in 2010-2012 reflected in the size of the budget deficit and the reaction of business to the crisis," the materials say.

GDP will grow faster under the optimistic scenario due to the knock-on effect from additional state spending (capital investment, state orders, guarantees, etc.) The difference might amount to one or two percentage points in 2010-2011.

The scenario calls for a less substantial reduction in state capital investment, which will produce favorable investment trends in those areas that have a large percentage of budget financing (transportation, education, health). The additional growth in capital investment might amount to 4.4-2.6 percentage points in 2010 and 2011 respectively, which will boost total investment in fixed assets by 1.6-3.2 percentage points compared with the conservative scenario.

The "oil" scenario projects the economy to recover due to rising oil prices and a more intense economic revival abroad. The scenario calls for oil at $60 per barrel in 2010,$70 per barrel in 2011 and $77 per barrels in 2012. The forecasts for GDP and the budget deficit have not been calculated under this scenario.