Zhukov's economic forecast is virtually identical to Finance Minister Alexei Kudrin's projections. However, there is an important difference. Zhukov said the government would increase spending on "large investment and social projects," and made reference to the building of oil pipelines, highways and seaports and other big-ticket infrastructure projects, using windfall gains from oil revenues.
At face value, updating economic data, particularly the price of oil, is usually interpreted as good news, but if federal spending next year spurs a softening of fiscal policy, this may not be the case.
The government has already decided to increase the amount of money per oil barrel going into the stabilization fund from the current $20 to $27, starting next year. Next year's budget already assumes that oil related windfalls will be directed to some social projects, but Zhukov's statements give the impression that the government intends to tap into the Stabilization Fund to partly finance infrastructure projects.
The fund is turning into a political football. Kudrin said July 22 that it would be partially invested in AAA-rated Western securities and used to pay off foreign debt - and not for impressive-project social spending.
With the election cycle on the horizon, the battle over what to do with the Stabilization Fund is set to divide the Kremlin's economic purists and those angling to buy "cheap growth" with higher-than-expected inflation.
