With its low levels of public debt, Russia has been able to steer well clear of the austerity versus spending debate that is currently causing so much derision in much of the Western world.

But while leaders of the euro zone countries bicker about whether to tighten their belts or use money as a means of sparking growth, some not-too-dissimilar arguments have begun cropping up in talks between Russia's fiscal policy makers, who are still busy compiling budget plans for President Vladimir Putin's sixyear term in office.

In Russia, the debate has much less to do with short-term survival, since public debt is only around 10 percent of gross domestic product, as with the country's fiscal future.

On the one hand are conservatives, who want to reign in spending and rebuild the rainy day funds that saw Russia through the 2008-09 financial crisis. On the other are liberal- leaning policymakers who want to increase spending on economic modernization to boost growth.

Those on the fiscally conservative side claim, like in many Western countries do, that there is a strong need to introduce more austere measures now to cope with fiscal risks that are sure to come up in the future, such as the imminent pension crisis.

The International Monetary Fund estimates that the costs of pensions and health care will rise by between 0.7 and 1.6 percent in the next 20 years as the Russian population ages.

The Russian economy is no stranger to fiscal conservatism. Former Finance Minister Alexei Kudrin was a big proponent of stashing windfall oil revenues away in piggy banks during his term in office ­ which is the main reason public debt levels are now so low.

Since the crisis, however, Russia's non-oil deficit has swelled to around 10 percent of GDP due to increased expenditures, and the oil price at which the country balances its budget has jumped to $115 per barrel, from just $40 less than five years ago.

The situation is not helped by the fact that Putin put forward a raft of spending commitments ahead of the elections, the size of which is variously estimated at between 1.5 percent and 5 percent of GDP. Even if it is only partly adhered to, the spending will form an integral part of any economic policy followed in the next six years.

But while the austerity argument certainly appears attractive in the uncertain economic landscape of today, in recent years another camp has sprung up in the government, advocating higher public spending in order to diversify the economy away from its dependence on energy exports, which make up around 60 percent of the country's revenue.

This dependence has made Russia vulnerable to fluctuations in the oil price, while very little of the revenues amassed when oil prices were high has been invested into infrastructure and improved public services in the way it has in oil-rich countries such as Norway.

Russia ranks lower than the global average in the World Bank's logistics performance index, scoring 2.38 points out of 5, on par with Ecuador and Guatemala, and far lower than the other BRIC nations.

"There is a strong need for higher investment spending in Russia," Ivan Tchakarov, chief economist at Renaissance Capital, told The Moscow News. "For the country to achieve sustainable medium- to longterm growth, it needs to invest in better roads and better transport systems."

The main promoters of higher spending policy are policymakers at the Economic Development Ministry, which called in April for the government to run a budget deficit of 1 percent to 1.5 percent over several years to allow greater economic diversification. The Finance Ministry forecasts Russia to run a deficit of 0.3 percent of gross domestic product this year, with a rise to 1.6 percent in 2013 and a drop to 0.7 percent in 2014.

The Economic Development Ministry's stance is supported by the International Monetary Fund, which urged Russia in a recent report to de-link expenditure decisions from oil price volatility.

"Fiscal policy has focused on the overall balance, rather than the nonoil balance...With ongoing pressures to spend windfall oil revenues, sustainability and intergenerational equity issues have taken a back seat," says the report, released in March.

The key question now is what path the new Cabinet will chose to follow as budget policies begin to emerge and the euro zone crisis begins to bite.

Putin made hints that he is leaning toward the austerity side by calling for a deficit-free budget by 2015 at a meeting with Finance Ministry officials in April.

Tchakarov said it is likely that the government will continue to follow fiscally conservative policies, but may also try to attract infrastructure investment from the private sector.

"The government is starting to recognize the investment issue as a crucial one for the country as a whole, but it seems likely that the burden probably needs to fall on the private sector," Tchakarov said. "But for this to happen, there need to be some big improvements in the overall business environment."

Keywords: Russia, Economy - Russian News - Russia

With its low levels of public debt, Russia has been able to steer well clear of the austerity versus spending debate that is currently causing so much derision in much of the Western world.

But while leaders of the euro zone countries bicker about whether to tighten their belts or use money as a means of sparking growth, some not-too-dissimilar arguments have begun cropping up in talks between Russia's fiscal policy makers, who are still busy compiling budget plans for President Vladimir Putin's sixyear term in office.

In Russia, the debate has much less to do with short-term survival, since public debt is only around 10 percent of gross domestic product, as with the country's fiscal future.

On the one hand are conservatives, who want to reign in spending and rebuild the rainy day funds that saw Russia through the 2008-09 financial crisis. On the other are liberal- leaning policymakers who want to increase spending on economic modernization to boost growth.

Those on the fiscally conservative side claim, like in many Western countries do, that there is a strong need to introduce more austere measures now to cope with fiscal risks that are sure to come up in the future, such as the imminent pension crisis.

The International Monetary Fund estimates that the costs of pensions and health care will rise by between 0.7 and 1.6 percent in the next 20 years as the Russian population ages.

The Russian economy is no stranger to fiscal conservatism. Former Finance Minister Alexei Kudrin was a big proponent of stashing windfall oil revenues away in piggy banks during his term in office ­ which is the main reason public debt levels are now so low.

Since the crisis, however, Russia's non-oil deficit has swelled to around 10 percent of GDP due to increased expenditures, and the oil price at which the country balances its budget has jumped to $115 per barrel, from just $40 less than five years ago.

The situation is not helped by the fact that Putin put forward a raft of spending commitments ahead of the elections, the size of which is variously estimated at between 1.5 percent and 5 percent of GDP. Even if it is only partly adhered to, the spending will form an integral part of any economic policy followed in the next six years.

But while the austerity argument certainly appears attractive in the uncertain economic landscape of today, in recent years another camp has sprung up in the government, advocating higher public spending in order to diversify the economy away from its dependence on energy exports, which make up around 60 percent of the country's revenue.

This dependence has made Russia vulnerable to fluctuations in the oil price, while very little of the revenues amassed when oil prices were high has been invested into infrastructure and improved public services in the way it has in oil-rich countries such as Norway.

Russia ranks lower than the global average in the World Bank's logistics performance index, scoring 2.38 points out of 5, on par with Ecuador and Guatemala, and far lower than the other BRIC nations.

"There is a strong need for higher investment spending in Russia," Ivan Tchakarov, chief economist at Renaissance Capital, told The Moscow News. "For the country to achieve sustainable medium- to longterm growth, it needs to invest in better roads and better transport systems."

The main promoters of higher spending policy are policymakers at the Economic Development Ministry, which called in April for the government to run a budget deficit of 1 percent to 1.5 percent over several years to allow greater economic diversification. The Finance Ministry forecasts Russia to run a deficit of 0.3 percent of gross domestic product this year, with a rise to 1.6 percent in 2013 and a drop to 0.7 percent in 2014.

The Economic Development Ministry's stance is supported by the International Monetary Fund, which urged Russia in a recent report to de-link expenditure decisions from oil price volatility.

"Fiscal policy has focused on the overall balance, rather than the nonoil balance...With ongoing pressures to spend windfall oil revenues, sustainability and intergenerational equity issues have taken a back seat," says the report, released in March.

The key question now is what path the new Cabinet will chose to follow as budget policies begin to emerge and the euro zone crisis begins to bite.

Putin made hints that he is leaning toward the austerity side by calling for a deficit-free budget by 2015 at a meeting with Finance Ministry officials in April.

Tchakarov said it is likely that the government will continue to follow fiscally conservative policies, but may also try to attract infrastructure investment from the private sector.

"The government is starting to recognize the investment issue as a crucial one for the country as a whole, but it seems likely that the burden probably needs to fall on the private sector," Tchakarov said. "But for this to happen, there need to be some big improvements in the overall business environment."