The International Monetary Fund warned Friday that the Russian government's move to raise budget spending by more than 12 percent would spur inflation and hurt the nation's economic growth in the long term.
IMF mission head to Russia Poul Thomsen called an inefficient budget spending policy a greater threat to Russia than declining world oil prices, news agencies reported. Record prices for oil, Russia's key commodity, have largely been behind the nation's economic turnaround.
The Russian government approved a proposal Thursday to increase budget spending this year by 12.3 percent, or 382.7 billion rubles (US$13.5 billion,Ђ11 billion). In a controversial decision, the government directed that 111 billion rubles (US$3.9 billion, Ђ3.2 billion) of that come from an inflation-fighting fund designed to absorb sky-high oil revenues.
A budget target of 8.5 percent inflation was unlikely to be met and even a 10.5 percent to 11 percent range would pose a challenge, Thomsen said. He warned that "limited supply" coupled with more money in the economy will push up inflation further and could see growth continue to fall in the long term.
Thomsen predicted that the economy would grow by just 5.5 percent this year - a more pessimistic assessment than the government's downwardly revised 5.8 percent.