Oil Stabilisation Bodes Well For Fiscal Outlook

A combination of positive variables has served to bolster the Russian fiscal outlook through the medium term and as a result, we have revised down our federal budget deficit forecast from 2010 onwards. We now expect the shortfall to fall to 6.8% of GDP in 2010 and 5.1% in 2011, and steadily further thereafter to 1.1% by 2014. We hold to our view that sustained wide deficits in 2009-2011 will not result in a fundamental destabilisation of the local economy. Healthy oil revenues, privatisation earnings, a comfortable cushion of sovereign wealth fund assets and historically low domestic rates all suggest that the deficit is sustainable through the medium term.

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