Press Release: Statement at the Conclusion of the IMF's 2013 Article IV Consultation Mission to the Russian Federation

June 18, 2013

Press Release No. 13/215
June 18, 2013

A staff team from the International Monetary Fund (IMF), headed by Mr. Antonio Spilimbergo, visited Moscow during June 5 - 18 to hold discussions for the 2013 Article IV consultation.1 The team met with Finance Minister Anton Siluanov, Central Bank of the Russian Federation (CBR) Governor Sergei Ignatiev, other senior officials, and representatives from the private sector, academia, and think tanks. At the conclusion of the visit, Mr. Spilimbergo issued the following statement:

Russia’s growth has slowed while inflation remains high. Economic activity has been constrained by weak investment and external demand. At the same time, the economy remains at full capacity, with unemployment at historic lows and capacity utilization at pre-crisis highs. We project growth at 2½ percent in 2013 and 3¼ percent in 2014. Headline inflation is projected to decline slightly to the upper end of the CBR target range for end 2013 of 5 to 6 percent and, without policy action, to remain above the target range of 4 to 5 percent in 2014.

Ambitious economic policy reforms are necessary to realize the Russian economy's medium-term potential and reduce its vulnerabilities. Calls for near-term policy stimulus may jeopardize newly minted macroeconomic anchors, and financial stability risks from rapid unsecured consumer credit growth are rising. Russia could be affected by a sharp decline in oil prices or an acceleration of capital outflows if global economic and financial conditions worsen. At the same time, Russia is better equipped to handle such shocks than previously, given a more flexible exchange rate, improved crisis management capacity, and narrower balance sheet mismatches. The pre-crisis growth model, based on increasing oil prices and rising use of spare capacity, is no longer viable. Growth in the next decade will need to rely on improving efficiency and productive investment—requiring maintenance of stable macro-economic conditions, further strengthening of institutions, and implementation of structural reforms.

The fiscal stance in 2013 is appropriate, while more ambitious medium-term fiscal adjustment and higher savings would be beneficial. Fiscal stimulus at this time would likely be ineffective and merely intensify inflationary pressures, given that the economy is operating at full capacity. The new fiscal rule is welcome and any temptations to increase government-related spending outside the rule should be resisted, as the rule helps smooth spending volatility and contains spending pressure. As the same time, the rule should be tightened starting next year—via a lower benchmark oil price and reduced net borrowing—to allow rebuilding of fiscal buffers by saving more of the exhaustible oil revenue. Fiscal adjustment should focus to the extent possible on expenditure reductions and on improving the mix and efficiency of spending while preserving space for growth-friendly infrastructure programs and critical social programs. This will require structural fiscal reforms—including addressing the challenges of steadily increasing long-term pension and health care costs.

Monetary policy should remain geared towards achieving inflation objectives. With 2013 inflation projections close to the CBR target range and uncertainty about the near-term economic outlook, the current monetary policy stance is appropriate, but sustainably reducing inflation to the lower 2014 target range calls for a tightening bias. Adoption of formal inflation targeting (IT) should help anchor inflation expectations. We welcome the considerable progress the CBR has made in improving the monetary policy framework and the authorities’ commitment to transition to full-fledged IT by end-2014. The CBR’s proposal to replace the inflation target range by a point target to guide inflation expectations more precisely is appropriate.

A strong supervisory framework remains essential to financial stability and growth. We welcome the CBR’s introduction of prudential measures to mitigate risks from rapid unsecured consumer credit growth. Formal debt-service-to-income ratio ceilings and higher capital requirements for high credit concentration risks should also be considered. We also welcome the recent steps to improve the supervisory framework, including legislative amendments to, among others, expand CBR’s supervisory authority over bank holding companies and related parties, raise capital requirements, and use professional judgment in applying laws and regulations to individual banks. The creation of a mega-supervisor could enhance the capacity to monitor systemic risks, but current weaknesses in supervision of nonbanks need to be addressed. Further, improvements in corporate governance, borrower information, creditor rights, and competition would strengthen the financial sector’s efficiency and contribution to growth.

Improving Russia’s business climate would provide needed impetus to investment, diversification, and growth. To leverage Russia’s comparative advantages in the energy sector, tax regime changes, strengthened property rights, and access to distribution channels are needed to attract foreign technical expertise and nimble domestic players. Improving the efficiency of publicly-owned companies is essential, and we welcome the government’s goal of reducing its footprint in the economy through privatization. While economic diversification is necessary to lift potential growth and reduce vulnerability to shocks, the authorities should consider the costs and benefits of regional development initiatives, and adopt measures to enhance labor force participation and mobility.”

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with its member countries, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.


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