Just days after President Vladimir Putin publicly scolded his Cabinet for not setting ambitious enough growth goals for Russia, the economics minister raised his forecasts for the economy on Thursday, citing high global oil prices.
German Gref, the economic development and trade minister, raised his outlook for Russia's growth this year to 6.4 percent from 5.2 percent, saying he now assumed higher oil prices. With his outlook now hinged on those prices, Gref said he also expected Russia's economy to average an annual 6.2 percent growth from next year to 2007. The government had previously said it expected growth of 5.8 percent next year.
"The figures could turn out even higher, but budget policy requires us to be cautious and conservative," Gref told state television after a Cabinet meeting.
He said the government was now budgeting with an average price of US$27.50 a barrel for Russia's Urals crude oil, up from US$22 a barrel. Urals, Russia's main export crude blend, traded at US$30.96 a barrel on Thursday. Urals crude has averaged US$29.02 a barrel this year, up from US$27.24 last year.
"By raising the oil price assumptions, by definition, Russia would have higher growth," said Peter Westin, senior economist at Aton Capital. Westin's own outlook is even more positive than Gref's: 7.2 percent growth for this year based on an average oil price of US$27 a barrel.
Amid the US-led war in Iraq and a bull market for energy and commodities, Russia's economy has grown in the last four years, helping lift the country from post-communist stagnation. The Kremlin's new projections, however, carried echoes of Soviet-era quotas, some analysts said.
In a sharply worded message at the Ministry of Finance last Friday, Putin ordered Gref and other top economic officials to work at achieving annual economic growth of at least 5 percent, or higher. By the end of his second term in 2008, Putin aims to cut Russia's poverty level from just over 20 percent to a level somewhere from 10 percent to 12 percent. Last week, he prodded his ministers to stake their jobs on hitting those targets.
"Do not be shy, just say it outright that this figure will be reached," he admonished Gref, who was present at the meeting at the Ministry of Finance. Putin similarly warned other assembled ministers and officials: "This applies to you all, too -- personal responsibility for the sector entrusted to you. If this entails negative consequences, you will be guilty," underscoring that the officials would be held personally responsible.
Some economists said that with his new forecast, Gref, a liberal, reform-minded but fiscally prudent Cabinet member, was simply catching up with the consensus among private economists: that Russia's stunning growth is set to continue.
But others said the rosier forecast was a throwback to Soviet days, when government officials accommodated demands from the president by "filling their quotas," even if the reported results were illusory.
"Gref has done a 180-degree turn," said Christopher Weafer, chief investment strategist at Alfa Bank in Moscow. "A year ago, he was very conservative and cautioning the government not to crank up budget expenditures based on unreliable revenue assumptions."
The Kremlin also signaled on Thursday that it was willing to rein in Russia's immensely profitable oil sector to stimulate growth in other parts of the economy. Putin has already hinted that he will raise taxes on Russian oil companies, although he has not set any precise new tax rates.