Spending spree

3 November 2010 By Jason Bush

The World Bank wants Russia to rethink its loose fiscal policy. The current 3 percent budget deficit looks enviable, but rising spending will add to economic strains. It will boost inflation, lead to higher taxes and fuel corruption and worse if the oil price falls.

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In its quarterly Russian Economic Report, the World Bank warns of "rising fiscal risks" in Russia. The report states that while Russia's oil price forecasts of $7579 a barrel in 201113 are consistent with market expectations, they also "make Russia vulnerable to a new, sudden drop in oil prices." The report also notes that "the pace of fiscal adjustment in the 201113 budgets is slower than initially envisaged, pushing the hard decisions on expenditure adjustments into the future".

On Oct. 29, President Dmitry Medvedev stated that fraud in state tenders cost one trillion roubles ($33 billion) each year, equivalent to 20 percent of federal government procurements and 10 percent of all federal expenditures.

In August and September, Russia sharply revised up its spending plans for 20112013, adding 14 percent to projected federal expenditures for 2011, 16 percent to projected expenditures in 2012, and 21 percent to projected 2013 expenditures.

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