The brightening picture for Russia - slowly climbing out of its first recession in a decade - was added to by news of wage arrears falling to their lowest in over a year. But Fitch said risks remain, notably ones "related to GDP growth, the implementation of fiscal tightening and oil prices". Alexei Kudrin, a fiscal hawk who has led the finance ministry for a decade, also stressed the need to slash the budget deficit to 1 percent of gross domestic product after 2012 - assuming oil prices of $60 a barrel - from 5.9 percent in 2009. "We do not have the scope to increase spending," Kudrin told a government-organised conference on economic modernisation.
"In the next 10 years, our spending in real terms will likely remain at current levels. It will not increase, and there is a risk that it could reduce." Fitch welcomed Russia's planned downward trajectory for its budget deficit, saying it "should help contain the impact of the recession on Russia's sovereign balance sheet". Russia's markets, however, showed little reaction to the upgrade, which came as no surprise after a similar move by Standard & Poor's ratings agency in December.
"The decision is in line with expectations as the budget deficit for 2009 was less than the government had forecast. The expectations for this year tend to be favourable too," said Yaroslav Lissovolik, analyst at Deutsche Bank. Slashing the budget deficit and keeping a lid on expenditure in coming years will not be easy after spending increased 2.3 times in the previous decade. "I think for the government - and our government is diverse - there is a big problem in curbing the (spending) appetites which still exist," Kudrin said.
Kudrin has fought hard to reign in budget spending and is credited with creating the oil wealth funds which helped Russia weather the latest recession with less damage than it sustained during the 1998 crisis. But the close ally of Prime Minister Vladimir Putin often faces tough criticism from parliamentarians, who advocate higher spending to boost living standards. The economy ministry, whose brief is long-term economic development, is also often publicly at odds with finance ministry's tight purse stance.