1. Slide 1 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton May 2010 Anton Stroutchenevski, Senior Economist Generous Budgetary Policy Is the Biggest Threat for the Economy

2. Slide 2 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Source: State Statistics Service, Troika estimates Rising oil price and expanding foreign borrowing failed to accelerate Russia’s growth: Russia can grow at any oil price

3. Slide 3 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton The government expects budget revenues to fall, R bln... Note: The government initially forecasted revenues in 2009 at R6,713.8 bln. In 4m10 revenues reached R2,618.3 bln, while the deficit was at R444.6 bln. Source: Finance Ministry

4. Slide 4 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton … but has not cut expenditures, R bln Note: The government initially planned expenditures in 2009 at R9,845.2 bln. Source: Finance Ministry

5. Slide 5 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Due to increased expenditures, the breakeven oil price climbed to $100/bbl Urals Note: The chart shows two scenarios for 2011: (1) spending kept at around current levels (i.e. R10 trln); and (2) spending cut to R9.3 trln as stipulated by the current medium-term fiscal plan. Source: Finance Ministry, Troika estimates Breakeven oil price, $/bbl UralsFederal budget expenditures, % of GDP

6. Slide 6 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Russia is returning to more a balanced model of economic development after several years of overheating Source: State Statistics Service, Troika estimates 1999 1989 2009 1961 1992 -15% -10% -5% 0% 5% 10% 15% 10%15%20%25%30%35%40% Investments/GDP GDP, y-o-y

7. Slide 7 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton A larger government and a budget deficit in Russia usually means worse economic performance Source: State Statistics Service, Finance Ministry, Troika estimates

8. Slide 8 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Inflation is falling in any case Source: State Statistics Service, Troika estimate

9. Slide 9 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Nominal interest rates have started to decline… Source: Central Bank, State Statistics Service

10. Slide 10 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton … but real rates have grown due to decelerating inflation Source: Central Bank, State Statistics Service Based on y-o-y inflation Based on 6m moving average inflation Source: Central Bank, State Statistics Service

11. Slide 11 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Annual inflation has been slowing faster than the Central Bank is cutting rates Source: State Statistics Service, Central Bank Annual inflation versus refinancing rate Source: State Statistics Service, Central Bank, Troika Monthly inflation

12. Slide 12 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Banks’ voluntary reserves were growing Source: Central Bank Source: Central Bank, Troika Voluntary reserves and interest ratesCentral Bank real deposit rate and voluntary reserves

13. Slide 13 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton The market expects rate cuts to continue Source: Central BankSource: State Statistics Service, Central Bank Bonds and loans in banks’ portfoliosAverage effective yield and refinancing rate

14. Slide 14 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Sustainable growth implies moderate ruble appreciation and a positive (or balanced) current account Source: Central Bank, State Statistics Service, Troika estimates GDP growth vs current account balance GDP growth vs real effective ruble exchange rate Source: Central Bank, State Statistics Service, Troika estimates

15. Slide 15 | May 2010 | Generous Budgetary Policy Is the Biggest Threat for the Economy | Evgeny Gavrilenkov, Stroutchenevski Anton Research Department+7 (495) 258 0511 Head of ResearchPaolo Zaniboni+7 (495) 787 2381 Strategy Chief strategistKingsmill Bond, CFA+44 (207) 583 3257 StrategistAndrey Kuznetsov+7 (495) 933 9844 Oil and Gas Senior analystOleg Maximov+7 (495) 933 9830 AnalystValery Nesterov+7 (495) 933 9832 AnalystAlex Fak+7 (495) 933 9829 Utilities Senior analystAlexander Kotikov +7 (495) 933 9841 AnalystIgor Vasilyev+7 (495) 933 9842 Assistant analystAndrey Trufanov+7 (495) 258 0511 Telecoms, Media and IT Senior analystEvgeny Golossnoy+7 (495) 933 9834 AnalystAnna Lepetukhina+7 (495) 933 9835 Metals and Mining Senior analystSergey Donskoy, CFA+7 (495) 933 9840 Senior analystMikhail Stiskin+7 (495) 933 9839 AnalystIrina Lapshina+7 (495) 933 9852 Manufacturing AnalystMikhail Ganelin+7 (495) 933 9851 Financials Senior analystAndrew Keeley+7 (495) 933 9845 AnalystOlga Veselova+7 (495) 933 9846 Consumer Senior analystVictoria Sokolova+7 (495) 933 9836 AnalystMikhail Krasnoperov+7 (495) 933 9838 Assistant analystVitaly Chakin+7 (495) 258 0511 Real Estate AnalystIgor Vasilyev+7 (495) 933 9842 Chemicals Senior analystMikhail Stiskin+7 (495) 933 9839 AnalystIrina Lapshina+7 (495) 933 9852 Transport AnalystKirill Kazanli+7 (495) 933 9853 Small and Mid Cap AnalystMikhail Ganelin+7 (495) 933 9851 Market Analysis AnalystNadezhda Utenkova+7 (495) 933 9855 Economy Senior economistAnton Stroutchenevski+7 (495) 933 9843 Fixed Income Head of FI researchAlexander Kudrin+7 (495) 933 9847 Senior analystAnton Tabakh, CFA+7 (495) 933 9857 Senior analystAlexey Bulgakov+7 (495) 933 9866 AnalystEkaterina Sidorova+7 (495) 933 9849 Ukraine StrategistRoman Zakharov+38 (044) 207 3780 EconomistIryna Piontkivska Senior analystYevhen Hrebeniuk Senior analystPeter Keller Senior analystIvan Kharchuk AnalystAlexander Tsependa Kazakhstan AnalystZaurbek Zhunisov AnalystAinur Medeubayeva Senior Management Chairman of Board of Directors and CEO, Troika Dialog GroupRuben Vardanian Chief Business OfficerJacques Der Megreditchian Chief Economist, Managing DirectorEvgeny Gavrilenkov Head of GMPeter Ghavami