St Petersburg International Economic Forum

Ukraine, Russia ‘doomed to be together’: Fin Min

We shouldn't hike spending: Russia Fin Min

Russia's Finance Minister Anton Siluanov has ruled out any stimulus to its economy, which has been hit by the crisis in Ukraine, and emphasized how close the ties binding the two countries are.

"We have more questions than answers (about the future of Russia's economy)," he told CNBC at the St Petersburg Economic Forum (SPIEF), Russia's equivalent of Davos.

Russia is facing recession in the first six months of 2014, after gross domestic product (GDP) shrunk by 0.5 percent in the first quarter on the previous three months.

Economists have slashed their forecasts for the year from slow growth to near stagnation. Inflation, which rose to 7.3 percent in April, is also causing increasing concern.

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This followed uncertainty over potential Russian intervention in neighboring Ukraine, which led Western governments to impose sanctions on some Russian businesses and individuals close to President Vladimir Putin.

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Economy Minister Alexei Ulyukayev said on Thursday that the economy might not slip into recession in the second quarter of 2014.

Some economists have argued that the country's rainy day funds should be tapped into to stimulate the economy through measures like infrastructure projects.

However, Siluanov insisted: "If you increase budget expenditure, this will create a system which is unsustainable over the long term."

He acknowledged the slowdown had been caused by the crisis in Ukraine - but said he was confident Russia would resume close economic ties with its neighbor.

"We have very close trading relations and our economies are very closely linked," he told CNBC.

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"The majority of production in Ukraine is orientated towards the East rather than the West. We are doomed to be together."

His comments come after Russia's state-backed energy company Gazprom has hiked its prices for Ukraine following the crisis. Ukraine has turned to the Western powers, in the form of the International Monetary Fund, to help it out of its current economic morass.

According to Siluanov, the cash flowing out of Russia may reverse and even be recuperated as investors regain faith in the country and swap their investments from dollars to roubles.

Russian banks like Sberbank will fill a funding gap left by Western banks being less willing to invest in Russia, he argued.

"We want to create the conditions for foreign and Russian investors to invest," Siluanov said.