OREANDA-NEWS. On July 21, 2009 PM Putin confirmed that pensions will be raised by 45.9% in 2010, to reach an average of RUB8,000. The measure will require an additional RUB700bn (or ~1.5% GDP) in budget spending in 2010, reported the press-centre of OTKRITIE FC.

View. While we believe that fiscal stimulus is a necessity in the current economic climate, we still treat the news as neutral. On the one hand, support of the population is certainly preferrable to financial injections into inefficient enterprises.

However, we are concerned that such a massive hike in social spending leaves very little resources for government investment. The resulting mix is unlikely to improve overall economic efficiency. In the long-run, if the recovery is once again purely consumption-driven it may not result in an increase of demand for local goods.

In fact, it could have the potential for increasing imports. An additional concern is that a 45.9% hike in pension payments, coupled with the prospect of spending all of reserve funds by year-end 2010, renders the widely discussed ~ RUB1trln increase in social taxes almost inevitable for 2011.