Kudrin: Russia has to cut budget deficit to 1% of GDP in 4 years

MOSCOW, Jun 1 (PRIME) -- Russia has to adapt to new realities of international trade and cut budget deficit by 1% of gross domestic product (GDP) in the next few years, Alexei Kudrin, former finance minister and chairman of the Center for Strategic Research Foundation, said in a report published on his Web site late on Tuesday.

“The main challenge of the budget policy is to adapt to new conditions of trade through a cut of the budget deficit to 1% in three to four years in addition to changes of the structure of spending. A decrease of deficit by 2–2.5% percentage points is a serious challenge for the tax and budget policies, and it is also the most important element of trust between the state, businessmen and citizens,” the report read.

This year, budget deficit may stand at about 3.5% of GDP, but in the next few years it may widen to about 4.5–5%, and Russia cannot allow it to happen. “We will have to use 2.5–3 trillion rubles from the Reserve Fund to cover budget deficit. The fund will be almost depleted,” the report said.

Analysts of the center also think that low inflation is a key factor for long-term growth. It is also a challenge for Russia to attain inflation of 3–4% per year under a floating exchange rate, given the need to develop the financial sector and to ensure its stability in high volatility of capital flows, the report said.

Russia should also solve the pension system problem as soon as possible. “Our calculations show that if the retirement age is not increased, the government will have to either increase transfers from the budget to the Pension Fund by 1 percentage point of GDP every five years or to increase payment rates into the fund by 1 percentage point every year in order to support the replacement rate (a ratio of pensions to wages),” the report read.

(65.9962 rubles – U.S. $1)

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