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. Last Updated: 07/27/2016

Finance Ministry Forecasts 0.5% Decline in 1998 GDP

Russia's economy will shrink by 0.5 percent this year because of the current sharp and severe financial crisis, the Finance Ministry predicted Wednesday.

The ministry had originally estimated 2 percent growth for 1998 following a 0.8 percent increase last year -- Russia's first growth since the 1991 Soviet collapse.

The Finance Ministry's macroeconomics chief, Anton Siluanov, said the shrinkage is likely to worsen Russia's deficit, because the government's budget is based on 2 percent growth.

The ministry now projects gross domestic product to total 2.7 trillion rubles ($435 billion), down from 2.84 trillion rubles in 1997.

But Siluanov maintained that in 1999, the economy should grow 1.5 percent with nominal GDP of 2.9 trillion rubles. This is still lower than earlier projections of 3 percent growth in 1999.

The ongoing financial crisis will mainly affect fulfillment of the country's 1999 budget, he said, as securities issued this year and maturing next year increase the expense of servicing domestic debt.

Reducing the deficit is one of several conditions imposed on Russia by the International Monetary Fund, which approved a multibillion-dollar rescue package this week.

But Russian lawmakers have resisted moves to raise taxes and cut the budget. In response, the IMF approved its part of a $17.1 billion loan package for Russia this week, but reduced the first installment by $800 million.

With previous loans, that brings Russia's international bailout to $22.6 billion.

The reduced installment -- $4.8 billion -- is to be deposited this week in the Central Bank to forestall a run on the Russian currency.

Siluanov blamed several factors for the economy's poor performance, particularly the steep drop in world prices for oil, a major Russian export, and reverberations from the financial crisis in Asia.