New Russian Budget: 40% Oil Revenues More

The Russian Cabinet of Ministers approved the draft budget for 2006. Next year?s budget foresees a 40-percent rise in expenditures that will be paid for with billions of dollars of additional revenue that comes from record-high world oil prices, MosNews.com reported.

Prime Minister Mikhail Fradkov said officials would ensure the extra injection of funds is spent ?effectively? but analysts warn that the government is loosening its strict fiscal policy of recent years for populist reasons ahead of parliamentary and presidential elections due in December 2007 and March 2008 respectively.

The draft budget ? which is due to be submitted for approval to parliament later this month ? relies on continued high oil revenues averaging $40 a barrel. Overall expenditure is earmarked at 4.27 trillion rubles ($150 billion), up from 3.048 trillion rubles in the 2005 budget. Revenues are forecast at 5.46 trillion rubles ($192 billion), up from 3.326 billion rubles a year earlier. The budget surplus is expected to be 776 billion rubles ($27.3 billion), equivalent to 3.2 percent of gross domestic product ? taking into account that a large part of the oil revenues are diverted into Stabilization Fund in order to protect the country?s economy from inflationary pressures.

?The finances are strong and the government is perfectly entitled to loosen up and spend more money. But the loosening appears to be a populist measure rather than efforts to convert the economy to a balanced, diversified one,? Chris Weafer, chief strategist at Alfa Bank in Moscow, told Associated Press. ?The government wants to maintain the feel-good factor and ensure its popularity ahead of elections,? he added.