The World Bank has said that Russia is recovering well from the financial crisis thanks to strong oil, but high commodity prices pose risks to inflation and fiscal stability, and a poor investment climate puts a drag on the growth. It said on Wednesday that the government must resist the temptation to go on a pre-election spending splurge, while the central bank should press on with increasing rouble flexibility even if it mean allowing sizable currency appreciation.

The World Bank lashed its forecast for 2011 gross domestic product growth to 4.4 per cent from 4.5 per cent in November`s report, and forecast a slowdown to 4.0 per cent in 2012. The World Bank said that the pace of economic growth (in Russia) in 2011 and 2012 could be constrained, and growth will depend on sustained gins in consumption and the rate of recovery with respect to longer-term credit to the private sector.

Economy’s dependence on highly volatile oil prices is believed to be causing downside risks, which could at any time retreat from current lofty levels above $100 a barrel. The present level of oil prices also poses upside risks to 2011 inflation, which the World Bank sees at 8-9 per cent compared with the government`s forecast of 6-7 per cent.

The World Banks’ lead economist for Russia, Zeljko Bogetic, told a conference in Moscow that an oil crude where export prices reduce the fiscal deficit but the oil deficit remains high, may again affect Russia. He added that authorities need to take advantage of current strong prices to prop up the budget.

Presidential vote in March 2012, upcoming elections and parliamentary polls in December may spur more budget spending on the back of strong oil, which could push up inflation.

The report said that there is no room for complacency, adding that macroeconomic policy should focus on the short term objective of controlling inflation and medium-term fiscal adjustment towards a long-term, sustainable level of non-oil fiscal deficit.

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