Russia braces for more gloom

May 26, 2009
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, MOSCOW, May 26 – Russian officials on Tuesday announced an even gloomier economic outlook than previously anticipated after President Dmitry Medvedev urged government spending cuts, especially in spendthrift regions.

After nearly a decade of oil-fuelled budget surpluses, Russia will this year have a deficit equal to nine percent of gross domestic product, an unnamed government official told Russian news agencies.

That was worse than an earlier prediction of 7.4 percent.

Separately, Deputy Economy Minister Andrei Klepach said GDP had continued to decline last month, with the economy shrinking by 10.5 percent in April compared to the same month last year.

In one bright spot, he said the rate of shrinkage had slowed somewhat.

On a seasonally adjusted basis, GDP declined by 0.4 percent in April from March, less steep than the 0.8 percent fall in March, he said.

The ministry\’s overall prediction for this year remains for the time being a decline in GDP of six to eight percent, he said.

The statistics follow some gloomy comments on the budget by President Dmitry Medvedev on Monday, although the Russian president for the most part steered clear of precise statistics.

Medvedev called for a "shift to a regime of tough economising of budget funds," hit out at corrupt officials for "sucking" away state funds and said Russia\’s regions — long accustomed to bail-outs from Moscow — would have to fend more for themselves.

Medvedev was on Tuesday meeting business leaders to discuss support for the medium-sized business sector, after criticism that policy under his predecessor Vladimir Putin was oriented towards massive oil and gas corporations.

Investors remain highly wary of Russia amid the global economic crisis and the country has not seen the kind of inflows of capital experienced by other major emerging economies like Brazil and China in recent weeks, analysts say.

As the crisis deepens, Russia\’s government is being forced to revise its budget plans for next year, resulting in the lack of specifics in Medvedev\’s Monday speech, one Russian newspaper, Kommersant, commented.

"One thing has become clear: the 2010-2012 budget will be prepared not on the basis of an anti-crisis regime, but a real crisis regime," the paper said.

As the global crisis began to hit Russia, both Medvedev and Putin, who remains powerful in the role of prime minister, placed the blame squarely on the United States and its banking crisis.

Officials have grown more pessimistic about the situation and some even suggested the government could stop publishing monthly unemployment data, making them less frequent.

The reports have so far continued to be published regularly, but have made grim reading.

Last month Russia\’s jobless total reached 10.2 percent of the working age population, the state statistics agency said on Friday.

The authorities have had to reach deep into Russia\’s reserve funds of accumulated oil wealth to support state spending.

Finance Minister Alexei Kudrin has said the main reserve fund could be entirely used up next year meeting government commitments, while state borrowing will increase.

On Monday Kudrin said Russia would borrow seven billion dollars next year and 10 billion dollars in the following years.

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