Journal Issue

Statement by the IMF Staff Representative on the Russian Federation

International Monetary Fund
Published Date:
September 2011
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1. This statement reports on information that has become available since the staff report was issued. This information does not alter the thrust of the staff appraisal.

2. Incoming data since the completion of the Article IV consultation in mid-June have been mixed. The preliminary 2011Q2 outturn for GDP growth was weaker than expected, suggesting that seasonally-adjusted quarter-on-quarter growth was only 0.1 percent compared to 0.9 percent in 2011Q1. The extent of the slowdown was surprising given that short-term indicators suggested robust performances in retail trade and fixed investment in April-June. Inflation slowed in July on the back of lower food prices, but remained elevated at 9 percent year-on-year vs. 9.4 percent in June. As in many other countries, financial conditions have worsened in Russia since the staff report was finalized at end-July as the MICEX index has dropped by more than 10 percent and the EMBI+ spread has increased by about 35 basis points. Since end-July, the ruble has depreciated by about 5 percent vis-á-vis the currency basket. Last, both the end-July federal government nonoil deficit and the end-May general government nonoil deficit outturns were better than projected at 5.1 percent of GDP and 1.4 percent of GDP, respectively, due to higher nonoil revenues and lower spending.

3. Overall, these data and the worsened outlook for global growth have caused staff to revise its near-term growth forecast downward, though the substance of staff’s policy advice is unchanged. On the basis of the recent slowdown observed in Russia, a stronger-than-anticipated slowdown in global growth, and lower oil prices, staff has revised down its GDP growth forecast by half a percent in 2011 and 0.4 percent in 2012, to 4.3 percent and 4.1 percent, respectively. However, the balance of risks to the outlook is tilted to the downside as both global growth and oil prices could yet be weaker than expected. Staff has also marked down its forecast for 2011 year-end inflation by half a percent to 7.5 percent, given recent inflation data and expectations that continued food price deflation will more than offset the recent ruble depreciation. This level will still exceed the central bank’s own target range of 6–7 percent for end-2011 and in the staffs view, further monetary tightening remains necessary to bring inflation firmly on a path toward an appropriate medium-term level of 3–5 percent. Staff is now forecasting a slightly more favorable federal government nonoil deficit of 11 percent in 2011, compared with 11.2 percent in the staff report, to reflect the latest budget outturn and the expectation of another supplemental budget later this year. Unless oil prices decrease substantially from current levels and the growth outlook becomes much weaker, staffs advice remains for a more ambitious medium-term fiscal consolidation than planned to return the nonoil deficit to a sustainable level, through growth-friendly, credible measures.

4. An initial draft of Strategy 2020 was released in August. The interim report on this social and economic strategy to guide Russia’s development through the year 2020 was developed by a number of expert working groups, commissioned by the government. The report proposes a set of recommendations as a basis for government discussion and stresses the importance of policy changes to achieve high-quality economic growth by ensuring macroeconomic and social stability, improving the business and investment climate, and diversifying exports. Discussion of Strategy 2020 is now ongoing, and the authorities also plan to seek input from foreign experts, including the Fund, on their assessment of the report. This process is expected to lead to changes in the policy recommendations and should be completed by December 1. Staffs preliminary assessment is that the recommendations dovetail well with the reforms discussed in the staff report and, accordingly, would help lay the basis for sustained growth.

5. The date for parliamentary elections has been set for December 4. Presidential elections will follow in the first part of 2012.

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