## 1. Selected Macroeconomic Indicators, 2008–13

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### Recent developments
- Real GDP growth and output gap
  - Real GDP growth: 4.3 percent in 2011 (same as 2010).
  - Output gap: estimated to have been closed since 2011:Q4.
- Inflation and labor market
  - Headline CPI: fell from 9.6 percent (y-o-y) in mid-2011 to 3.6 percent in May 2012.
  - Staff measure of core inflation: remains around 6 percent.
  - Unemployment: continued to decline, reaching pre-crisis lows.
  - Capacity utilization in manufacturing: recovered to 2007–08 levels.
- External sector and reserves
  - Current account surplus: 4.7 percent of GDP in 2010; 5.3 percent in 2011.
  - Export values: rose 31 percent in 2011.
  - Net capital outflows: intensified significantly in H2 2011; large net private capital outflows mirrored the current account surplus in 2011.
  - International reserves: increased by $19bn in 2011 (partly due to evaluation effects).
- Exchange rate and markets
  - Ruble: depreciated by over 10 percent during late summer 2011 and again during May–June 2012 (each followed by swift rebounds).
  - MICEX: fell 17 percent in 2011; added 16 percent in Q1 2012 but lost those gains during May 2012.
  - Russia’s EMBI+ spreads: rose to a peak of 410 bps in October 2011; about 275 bps in June 2012.
- Banking, credit, and liquidity
  - Credit growth: rebounded strongly; corporate sector switched to domestic funding; consumer credit grew strongly.
  - Bank balance sheets: improving NPL ratios and profitability.
  - Liquidity support: crisis injections tapering off; deposit and funding growth supported lending expansion.
- Fiscal policy and oil funds
  - Federal nonoil deficit: declined from 12.7 percent of GDP in 2010 to 9.8 percent of GDP in 2011.
  - Some windfall oil revenues from 2011 were deposited in the Reserve Fund in early 2012.
  - Reserve Fund: has been significantly drawn down.

### Near-term outlook and risks
- Growth and inflation projections (unchanged policies)
  - Real growth: staff projects around 4 percent in 2012 and 2013.
  - Inflation: projected to rebound to 6½ percent by end-2012.
- External projections
  - Current account surplus: projected to decline amid weaker oil prices and strong import demand.
  - Capital outflows: likely to continue, albeit at a moderating pace.
- Near-term risks (balanced but considerable)
  - Upside risks: higher oil prices; reversal of capital outflows; diminished political uncertainty; quick credible structural reforms; looser fiscal policy following pre-electoral promises.
  - Downside risks: further decline in oil prices; weaker investment sentiment; lower external demand; domestic complacency; lack of reform; intensification of euro-area turmoil (mainly via oil channel).
- Policy options if downside shocks materialize
  - Allow the exchange rate to operate as the main shock absorber.
  - Provide sufficient liquidity to banks; CBR to make emergency liquidity facilities available as needed (with adequate safeguards).
  - Monetary policy: could become more accommodative, provided inflation is in check.
  - Fiscal policy: another massive fiscal stimulus is imprudent given already-high nonoil deficit and low multiplier; postpone adjustment in the nonoil deficit and allow automatic stabilizers to operate.

### Medium-term outlook and scenarios
- Baseline
  - Real growth: projected to fall to 3¾ percent by 2017 under current policy plans.
  - Long-term potential growth: modest—below 4 percent.
  - Inflation: around 6½ percent under unchanged policies.
  - Current account: will gradually decline as oil prices stabilize and robust import growth continues.
- Adverse scenario
  - A sharp and permanent decline in commodity prices: considerable pressure on external and fiscal accounts; slower economy; prolonged capital outflows and weak investor confidence.
- Reform scenario
  - Stronger policy frameworks and decisive structural reforms: could lift medium-term growth to around 6 percent.
  - Preconditions: stronger and credible fiscal retrenchment; monetary policy taking full control of inflation; stronger and more competitive financial system; effective structural reforms.
  - Short-term fiscal drag would be offset by improved investor confidence and earlier return of productive capital inflows.

### External sector assessment (Box 1 highlights)
- Staff assessment for 2011
  - External position: moderately weaker than consistent with medium-term fundamentals and desirable policy settings.
  - Regression-based assessment: cyclically-adjusted current account surplus was 0 to 2 percent of GDP weaker than the level implied by fundamentals and desirable policy settings.
  - REER overvaluation: model-based approaches point to a modest real exchange rate overvaluation of 0–10 percent.
  - Fundamentals-based wage approach: ruble about 9 percent overvalued for 2011.
- Policy implication
  - Nonoil fiscal deficit: remains significantly higher than long-term sustainable level (estimated at around 5 percent of GDP).
  - More prudent fiscal policy: would result in a larger current account surplus (by about ¾ percentage points of GDP).
  - Increased exchange rate flexibility: appropriate to help address imbalances.

### Regional spillovers from Russia (Box 2)
- Transmission channels
  - Trade, remittances, and policy (exchange-rate movements and financial sector effects).
- Crisis impact and recovery
  - 2008/09 crisis: sharp contraction in Russia cut imports from and remittances to CIS; ruble depreciation triggered currency devaluations and weakened banks’ balance sheets in CIS.
  - Recovery: Russia’s recovery benefits the region but Russian policy actions (e.g., export ban on cereals Aug 2010–June 2011; gasoline export duty increase May 2011) added regional inflationary pressures.
- Recovery in imports and remittances; country exposure
  - Russia’s imports from CIS: rebounded beyond 2007–08 levels (over 8 percent of combined GDP of the region).
  - Importance to specific countries: Russia’s imports account for 23–32 percent of total exports for Belarus, Kyrgyz Republic, and Ukraine.
  - Remittances: surpassed pre-crisis peak; account for 15-40 percent of GDP in Moldova, Kyrgyz Republic, and Tajikistan.
- Quantitative spillover evidence (GVAR)
  - GDP elasticity to Russia’s GDP: around 3 in Armenia and Ukraine.
  - Overall spillover risk from Russia: far higher than from core EA and comparable to that from the U.S.

### Pension reform (Box 5)
- Fiscal impact of demographics
  - Projected public pension spending: would rise from 9 percent of GDP in 2010 to 16 percent of GDP by 2050 if replacement rate kept at 2010 level.
- Main reform levers
  - Curtail eligibility (increase retirement age).
  - Reduce generosity (lower replacement rate).
  - Increase revenues (raise contribution rate).
- Recommended approach: increase retirement age
  - Current statutory retirement ages: 55 years for women; 60 years for men.
  - Proposed path: equalize retirement ages to 63 years by 2030 and 65 years by 2050.
  - Expected outcome: stabilize pension spending at current levels.
  - Complementary measures: phase out special early-benefit provisions; reduce benefits claimed prior to retirement age.
  - Advantages: increase employment levels; avoid reducing replacement rate; easier public comprehension given rising life expectancy.
- Assessment of alternatives
  - Cutting replacement rates: would increase old-age poverty; replacement rates are broadly in line with other countries.
  - Raising payroll contributions: would require raising payroll tax from 22 percent of wages to about 30 percent in 2030 and more than 40 percent in 2050 to keep spending at current levels; such levels exceed typical rates and could harm labor markets and promote informality.
- Broader implications
  - Sustainable pension system: could support needed fiscal adjustment over medium to long term.
  - Policy design: accompany retirement age increases with limits on early retirement and simplification of special provisions.

### Fiscal policy: risks and recommendations (excerpt)
- Risks
  - Current budget risks overheating the economy and depleting wealth of future generations.
- Recommendation
  - Implement ambitious fiscal consolidation to return the nonoil deficit to about 5 percent of GDP by 2015.
  - Adopt a firm medium-term fiscal anchor to decouple fiscal stance from short-term oil price variations.
  - Durable consolidation: will need structural reforms, including pension reform.

### Monetary policy (excerpt)
- Objective
  - Secure low and stable inflation.
- Guidance
  - Timely tightening: necessary to contain rebound in inflation and anchor expectations.
  - Greater exchange rate flexibility: welcome to absorb external shocks and allow monetary policy to focus on inflation.
  - Steps to prepare for inflation targeting: strengthen tools, enhance communication, publish inflation forecasts, and make the repo rate the primary policy rate.

### Financial sector and supervision (excerpt)
- Priorities
  - Strengthen supervisory framework to support sound intermediation.
  - Prompt passage of legislation on consolidated supervision and connected lending.
  - Expand CBR powers to use professional judgment.
  - Vigilance on asset quality amid rapid credit growth and volatile oil prices.

### Structural reforms (excerpt)
- Goals
  - Increase investment, diversify the economy, raise potential growth.
- Recommended actions
  - Use WTO accession momentum to strengthen rule of law, reduce corruption, and resist protectionism.
  - Scale back state involvement, including transparent privatization of state-owned companies.
  - Deliver structural reforms quickly.

### Key numerical indicators (selected, preserved exactly)
- Growth and inflation
  - Real GDP growth: 2009 -7.8; 2010 4.3; 2011 4.3; 2012 4.0; 2013 3.9.
  - CPI inflation (eop): 2008 13.3; 2009 8.8; 2010 8.8; 2011 6.1; 2012 6.5; 2013 6.5.
  - Staff projection: inflation rebound to 6½ percent by end-2012.
- External accounts (billions of U.S. dollars)
  - Current Account: 2008 103.7; 2009 49.5; 2010 70.0; 2011 98.8; 2012 89.9; 2013 53.8.
  - Exports: 2008 471.6; 2009 303.4; 2010 400.1; 2011 522.0; 2012 531.1; 2013 523.9.
  - Energy exports: 2008 310.1; 2009 190.7; 2010 254.0; 2011 341.8; 2012 350.0; 2013 332.1.
  - Oil: 2008 241.0; 2009 148.7; 2010 206.3; 2011 277.5; 2012 275.3; 2013 257.5.
  - Gas: 2008 69.1; 2009 42.0; 2010 47.7; 2011 64.3; 2012 74.8; 2013 74.6.
  - Imports: 2008 -291.9; 2009 -191.8; 2010 -248.7; 2011 -323.8; 2012 -349.5; 2013 -376.4.
  - Net international reserves (memorandum): 2008 427.1; 2009 439.5; 2010 479.4; 2011 498.6; 2012 521.2; 2013 533.4.
  - World oil price: 2008 97.06; 2009 61.87; 2010 79.01; 2011 104.0; 2012 101.8; 2013 94.2.
  - Urals oil price: 2008 94.46; 2009 61.27; 2010 76.81; 2011 101.8; 2012 99.6; 2013 92.0.
- Fiscal and public finances (percent of GDP)
  - General government revenue: 2009 35.0; 2010 35.5; 2011 38.4; 2012 37.5; 2013 36.3.
  - Oil revenue: 2009 8.9; 2010 9.8; 2011 11.7; 2012 11.5; 2013 10.1.
  - Nonoil revenue: 2009 26.1; 2010 25.7; 2011 26.6; 2012 26.0; 2013 26.2.
  - Expenditure: 2009 41.4; 2010 39.0; 2011 36.8; 2012 37.3; 2013 36.9.
  - General government nonoil primary balance: 2009 -14.6; 2010 -12.7; 2011 -9.6; 2012 -10.5; 2013 -9.8.
  - Reserve Fund: 2009 4.7; 2010 1.7; 2011 1.5; 2012 3.0; 2013 3.5.
  - NWF: 2009 7.1; 2010 6.0; 2011 5.1; 2012 4.4; 2013 4.0.
  - General government debt: 2009 11.3; 2010 11.8; 2011 12.0; 2012 11.5; 2013 11.2.
- Monetary and financial
  - Broad money (billions of rubles): 2008 16,277; 2009 19,096; 2010 19,420; 2011 20,445; 2012 21,300; 2013 23,791.
  - Ruble broad money: 2008 12,976; 2009 15,268; 2010 15,639; 2011 16,901; 2012 17,690; 2013 20,012.
  - CPI inflation (12-month change, eop): 2008 13.3; 2009 8.8; 2010 8.8; 2011 6.1; 2012 6.5; 2013 6.5.
  - Real credit to the economy (12-month change): 2008 21.1; 2009 -5.7; 2010 -2.5; 2011 0.0; 2012 1.6; 2013 3.8.
- Financial soundness indicators (selected)
  - Capital to risk-weighted assets: 2007 15.5; 2008 16.8; 2009 20.9; 2010 18.1; 2011 14.7; 2012 (Q1) 14.7.
  - NPLs to total loans: 2007 2.5; 2008 3.8; 2009 9.6; 2010 8.2; 2011 6.6; 2012 (Q1) 6.8.
  - Return on assets: 2007 3.0; 2008 1.8; 2009 0.7; 2010 1.9; 2011 2.4; 2012 (Q1) 2.4.

### Risk Assessment Matrix (selected risks)
- 1. Sharp oil price decline
  - Relative Likelihood: Medium
  - Impact if Realized: High
- 2. Sharp oil price increase
  - Relative Likelihood: Low
  - Impact if Realized: High
- 3. Acceleration of capital outflows
  - Relative Likelihood: Medium/High
  - Impact if Realized: Low
- 4. Funding freeze
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
- 5. Failure of a large bank
  - Relative Likelihood: Medium
  - Impact if Realized: Low

### Data, statistics, and surveillance (selected)
- Data adequacy: broadly adequate for surveillance; scope exists for improvements (quarterly GDP consistency, balance sheet data, government finance detail).
- SDDS subscriber since January 31, 2005.
- Selected reporting/timeliness (as of mid-2012)
  - Exchange Rates: latest observation 6/30/12; frequency D.
  - International Reserve Assets and Reserve Liabilities: latest observation 6/1/2012; date received 6/6/12; frequency M.
  - Broad Money: latest observation 6/1/2012; date received 6/27/12; frequency M.
  - Consumer Price Index May 2012: date received 6/6/12; frequency M.
  - External Current Account Balance: Q1 2012; date received 4/5/12; frequency Q.
- Data ROSC reassessment: June–July 2010 (published February 28, 2011) concluded macroeconomic statistics are generally of high quality.

### Governance and Fund relations (selected institutional facts)
- Membership Status: Joined 06/01/1992; Article VIII.
- Quota: 5,945.40 (SDR Million) — 100.00 (Percent of Quota).
- Exchange arrangements: de jure other managed arrangement (controlled floating), bi-currency basket composed of €0.45 and $0.55; fixed trading band eliminated effective October 13, 2010.
- Article IV consultation cycle: standard 12-month; last consultation concluded September 9, 2011.

*RUSSIAN FEDERATION 2012 ARTICLE IV REPORT (selected excerpts, _cr12217_).*

### 1. Selected Macroeconomic Indicators, 2008–13 _________________________________________________  30

### 1. Selected Macroeconomic Indicators, 2008–13

### Recent developments
- Real GDP growth: Russia recorded growth of 4.3 percent in 2011, the same as in 2010; economic momentum continued in the first quarter of 2012.
- Output gap: The output gap is estimated to have been closed since 2011:Q4.
- Inflation:
  - Headline CPI fell from 9.6 percent (y-o-y) in mid-2011 to 3.6 percent in May 2012 (historic low), largely due to moderation of food price inflation, base effects, and a 6-month delay of the usual annual increase in administered prices.
  - Staff measure of core inflation remains around 6 percent.
- Labor market: Unemployment continued to decline, reaching pre-crisis lows; capacity utilization in manufacturing recovered to 2007–08 levels; strong real wage and consumption growth supported demand.
- External sector:
  - Current account surplus increased from 4.7 percent of GDP in 2010 to 5.3 percent in 2011.
  - Export values rose 31 percent in 2011 (supported by rising oil prices), partly offset by high import growth.
  - Net capital outflows intensified significantly in the second half of 2011; large net private capital outflows broadly mirrored the current account surplus in 2011.
  - International reserves increased by $19bn in 2011, partly due to evaluation effects.
- Exchange rate and markets:
  - Ruble depreciated by over 10 percent during late summer 2011 and again during May–June 2012 (each followed by swift rebounds).
  - MICEX stock market fell 17 percent in 2011 (nadir in October); added 16 percent in Q1 2012 but lost those gains during May 2012 flight-to-quality episode.
  - Russia’s EMBI+ sovereign spreads rose to a peak of 410 bps in October 2011, and stood at about 275 bps in June 2012.
- Banking and credit:
  - Credit growth rebounded strongly; corporate sector switched from external to domestic funding and consumer credit grew strongly.
  - Bank balance sheets improved with declining nonperforming loan (NPL) ratios and improving profitability.
  - Liquidity support: Crisis liquidity injections are tapering off; deposit and funding growth supported lending expansion.
- Fiscal policy:
  - Federal nonoil deficit declined from 12.7 percent of GDP in 2010 to 9.8 percent of GDP in 2011 (due to nonoil revenue overperformance and expenditure cuts).
  - Some windfall oil revenues from 2011 were deposited in the Reserve Fund in early 2012.
  - Oil funds: Reserve Fund has been significantly drawn down.

### Near-term outlook and risks
- Growth and inflation projections under unchanged policies:
  - Staff projects real growth at around 4 percent in 2012 and 2013.
  - Inflation is projected to rebound to 6½ percent by end-2012.
- External projections:
  - External current account surplus projected to decline amid weaker oil prices and continuing strong import demand.
  - Capital outflows likely to continue, albeit at a moderating pace.
- Near-term risks (balanced but considerable):
  - Upside: Higher oil prices, reversal of capital outflows, diminished political uncertainty, quick credible structural reforms, looser fiscal policy following pre-electoral promises — could raise growth and add pressures to domestic demand and inflation.
  - Downside: Further decline in oil prices, weaker investment sentiment, lower external demand, domestic complacency, lack of reform — could weaken growth; strong intensification of euro-area turmoil would affect Russia mainly via the oil channel.
- Policy options if downside shocks materialize:
  - Allow the exchange rate to operate as the main shock absorber.
  - Provide sufficient liquidity to banks; CBR to make emergency liquidity facilities available as needed (with adequate safeguards).
  - Monetary policy could become more accommodative, provided inflation is in check.
  - Fiscal policy: Because the nonoil fiscal deficit is already high and the multiplier is low, another massive fiscal stimulus is imprudent; adjustment in the nonoil deficit should be postponed and automatic stabilizers allowed to operate.

### Medium-term outlook and scenarios
- Baseline:
  - Under current policy plans, real growth projected to fall to 3¾ percent by 2017.
  - Long-term potential growth will be modest—below 4 percent.
  - Inflation will remain elevated at around 6½ percent under unchanged policies.
  - Current account surplus will gradually decline as oil prices stabilize and robust import growth continues.
- Adverse scenario:
  - A sharp and permanent decline in commodity prices would put considerable pressure on external and fiscal accounts, slow the economy, and prolong capital outflows and weak investor confidence.
- Reform scenario:
  - Stronger policy frameworks and decisive structural reforms could lift medium-term growth to around 6 percent.
  - Preconditions in this scenario include a stronger and more credible fiscal retrenchment, monetary policy taking full control of inflation, a stronger and more competitive financial system, and effective implementation of structural reforms.
  - Short-term drag from fiscal retrenchment would be offset by a more stable and business-friendly environment, boosting investor confidence and supporting an early return of productive capital inflows.

### External sector assessment (Box 1 highlights)
- Staff assessment for 2011:
  - Russia’s external position in 2011 was moderately weaker than one consistent with medium-term fundamentals and desirable policy settings.
  - Regression-based assessment: cyclically-adjusted current account surplus was 0 to 2 percent of GDP weaker than the level implied by fundamentals and desirable policy settings (current account norm).
  - Model-based approaches point to a modest real exchange rate overvaluation of 0–10 percent.
  - Fundamentals-based wage approach indicates the ruble was about 9 percent overvalued for 2011.
- Policy implication:
  - The nonoil fiscal deficit remains significantly higher than its long-term sustainable level (estimated at around 5 percent of GDP).
  - More prudent fiscal policy, as recommended by staff, would result in a larger current account surplus (by about ¾ percentage points of GDP, about half of the estimated current account gap).
  - Increased exchange rate flexibility is appropriate and should help address imbalances.

*RUSSIAN FEDERATION 2012 ARTICLE IV REPORT (selected excerpts).*

### Box 2. Regional Spillovers from Russia

### Box 2. Regional Spillovers from Russia

### Interconnections and transmission channels
- The Russian economy is closely interconnected with the CIS region, mainly via trade, remittances, and policy channels.
- Transmission channels highlighted:
  - Trade: Russia’s imports from CIS countries and its export policies (including export bans and duties).
  - Remittances: Workers’ remittances from Russia to CIS countries.
  - Policy: Exchange-rate movements and associated financial sector effects (e.g., ruble depreciation triggering currency devaluations in CIS countries and weakening banks’ balance sheets and credit).

### Impact of the 2008/09 crisis and subsequent developments
- The sharp contraction of the Russian economy during the 2008/09 crisis affected the region severely, with a significant drop in Russia’s imports from and remittances to the region.
- A large depreciation of the ruble during the crisis triggered sharp currency devaluations in most CIS countries, weakening banks’ balance sheets and credit.
- Russia’s subsequent recovery has been benefiting the region, but policy actions added to regional inflationary pressures:
  - Russia’s export ban on cereals during August 2010–June 2011.
  - Increase in the gasoline export duty to a prohibitive level in May 2011.

### Recovery in imports and remittances; country exposure
- Imports and remittances have recovered fully from the 2008/09 crisis.
- Russia’s imports from CIS countries rebounded beyond the 2007–08 levels (over 8 percent of the combined GDP of the region).
- Importance of Russian markets for specific countries:
  - Russia’s imports account for 23–32 percent of total exports for Belarus, Kyrgyz Republic, and Ukraine.
- Remittances:
  - Remittances surpassed the pre-crisis peak.
  - Remittances remain particularly important for Moldova, Kyrgyz Republic, and Tajikistan, where remittances from Russia are a key source of foreign exchange earnings (15-40 percent of GDP).
- Given the strong linkages between Russia and other CIS countries, new shocks to the Russian economy would continue to reverberate throughout the region.

### Quantitative spillover evidence from GVAR
- A global vector auto-regression (GVAR) confirms considerable growth spillovers from Russia to the region.
- Key quantitative findings:
  - The GDP elasticity to Russia’s GDP is around 3 in Armenia and Ukraine.
  - This elasticity is much higher than the elasticity of a combined GDP shock to France, Germany, and the Netherlands (Core EA).
  - Given the significantly higher volatility of Russia’s growth, Russia will remain the key spillover risk to the region.
  - The “overall spillover risk” from Russia—the estimated GDP elasticity times standard deviation of the growth rates—is far higher than that from core EA and comparable to that from the U.S.

*Prepared by Daehaeng Kim. Source: Box 2, "Regional Spillovers from Russia," _cr12217 - Box 2. Regional Spillovers from Russia.*

### Box 5. Pension Reform in Russia

### Box 5. Pension Reform in Russia

### Projected fiscal impact of demographic change
- Staff estimates suggest that given projected increases in longevity and relatively low fertility rates, keeping the replacement rate for pensions in Russia at current levels would nearly double public pension spending as a share of GDP, from 9 percent of GDP to 16 percent of GDP by 2050.
- Chart (text summary): Projected Public Pension Spending in Russia to keep replacement rate at 2010 level — shows spending rising from around 9 percent of GDP in 2010 to 16 percent of GDP by 2050.

### Main reform dimensions to contain spending
- Three primary policy levers identified:
  - Curtail eligibility (mainly by increasing the retirement age).
  - Reduce the generosity of the system (i.e., the replacement rate).
  - Increase revenues (i.e., raise the contribution rate).

### Recommended approach: Curtail eligibility (increase retirement age)
- The recommended option is to curtail eligibility, mainly by increasing the retirement age.
- Current statutory retirement ages: 55 years for women and 60 years for men.
- Proposed path consistent with life expectancy increases:
  - Gradually equalize retirement ages for both sexes to 63 years by 2030 and 65 years by 2050.
- Expected outcome: Such adjustments could stabilize pension spending at current levels.
- Complementary measures:
  - Phase out complex systems that allow certain occupations and professions to claim benefits early.
  - Reduce benefits claimed prior to retirement age to reflect the longer period over which they will be received.
- Rationale and advantages:
  - Increase employment levels.
  - Help avoid a decrease in the replacement rate, thus reducing the impact of reforms on elderly poverty.
  - Potentially easier for the public to understand in light of increasing life expectancies.

### Assessment of alternatives (why less preferred)
- Substantial cuts in replacement rates:
  - Undesirable because they would increase old-age poverty.
  - Note: replacement rates are broadly in line with other countries at present.
- Large increases in payroll contributions:
  - To keep pension spending at current levels would require raising the payroll tax from its current level of 22 percent of wages to about 30 percent of wages in 2030 and more than 40 percent in 2050.
  - These contribution levels are beyond currently observed payroll rates in other countries—nearly all advanced and emerging economies have pension contribution rates below 30 percent of wages.
  - Large contribution hikes would have adverse labor market effects and could further promote informality.
  - Such increases would contradict recent efforts of the Russian authorities to reduce the cost of labor.

### Broader fiscal and policy implications
- Putting Russia’s pension system on a sustainable footing could support needed fiscal adjustment over the medium to long term and help ensure an enduring return to a sustainable fiscal position.
- Policymakers should accompany increases in retirement age with measures to limit early retirement and simplify special early-benefit provisions.

*Prepared by Charleen Gust. Source: Box 5, "Pension Reform in Russia", RUSSIAN FEDERATION 2012 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND.*

### 37. The Russian economy has recovered from the 2008–09 crisis and is now running close

### 37. The Russian economy has recovered from the 2008–09 crisis and is now running close to its potential.

### Economic recovery and outlook
- High oil prices, strong wage growth, and robust consumption have supported demand.
- The unemployment rate and capacity utilization have recovered their pre-crisis levels, suggesting that any remaining slack in the economy is small.
- The factors recently muting headline inflation are expected to recede in coming months.
- Under unchanged policies, the outlook is for continued moderate growth and a rebound in inflation.
- Russia still has significant unrealized growth potential; the new government has the opportunity to realize this potential and put Russia on a sustainable growth path while reducing vulnerabilities to shocks.

### External risks and exchange rate policy
- Ongoing turbulence in international markets is affecting Russia mostly through oil prices.
- Reliance on oil exports exposes Russia to declining oil prices, especially if accompanied by large capital outflows.
- The increased flexibility of the exchange rate has been helping absorb external shocks and address imbalances.
- The more flexible exchange rate and the private sector’s reduced external exposure have improved the economy’s resilience to external shocks.
- Policy guidance if downside risks materialize:
  - Allow the exchange rate to operate as the main shock absorber.
  - Provide liquidity as needed.
  - Allow automatic stabilizers to operate.

### Fiscal policy: risks and recommendations
- The current budget risks overheating the economy and is depleting the wealth of future generations.
- Recommendation: implement an ambitious fiscal consolidation to return the nonoil deficit to about 5 percent of GDP by 2015, which staff estimates would be consistent with intergenerational equity.
- Adopt a firm medium-term anchor for fiscal policy to decouple the fiscal stance from short-term variations in oil prices and ensure oil wealth is shared across generations.
- Given the low share of discretionary expenditures in total expenditures, durable fiscal consolidation will need to be underpinned by structural reforms, including pension reform.
- An adequately ambitious fiscal anchor should be reinstated to guide medium-term fiscal policy.

### Monetary policy
- Monetary policy should be aimed at securing low and stable inflation.
- Timely tightening of monetary policy is necessary to contain the rebound in inflation and anchor inflation expectations.
- Greater exchange rate flexibility is welcome because it helps absorb external shocks and allows monetary policy to focus squarely on inflation.
- For successful adoption of inflation targeting, continued steps to strengthen monetary policy tools are necessary.
- Further enhancing communication policies, including the publication of inflation forecasts, will be important to improve transparency and convey the rationale for the CBR’s policy measures to the public.
- Transparency would also be improved by making the repo rate formally the primary policy interest rate.

### Financial sector and supervision
- A stronger supervisory framework is key to facilitating sound financial intermediation.
- The financial system is improving, but concerns remain about asset quality in the context of rapid credit growth and volatile oil prices.
- Russia continues to improve its financial stability analyses and macroprudential oversight framework.
- Priority measures include the prompt passing of legislation on consolidated supervision and connected lending, and the expansion of the CBR’s powers to use professional judgment.

### Structural reforms
- Delivering on structural reforms will promote economic growth by increasing investment, diversifying the economy, and raising potential growth.
- Russia’s accession to the WTO should be seized upon to strengthen momentum for reforms, make the business environment more predictable and rules based, and to resist protectionist pressures.
- Complementary steps recommended:
  - Reduce corruption.
  - Strengthen the rule of law.
  - Scale back state involvement in the economy, including through transparent and decisive privatization of state-owned companies.
- The new government should deliver quickly on long-awaited structural reforms.

*Source: _cr12217 - 37. The Russian economy has recovered from the 2008–09 crisis and is now running close*

### 44. It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### _cr12217 - 44. It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### Proposed scheduling
- It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### External sector — balance of payments (2008–13, selected figures)
- Current Account: 103.7 (2008); 49.5 (2009); 70.0 (2010); 98.8 (2011); 89.9 (2012); 53.8 (2013)
- Trade Balance: 179.7 (2008); 111.6 (2009); 151.4 (2010); 198.2 (2011); 181.6 (2012); 147.5 (2013)
- Exports: 471.6 (2008); 303.4 (2009); 400.1 (2010); 522.0 (2011); 531.1 (2012); 523.9 (2013)
  - Non-energy exports: 161.5 (2008); 112.7 (2009); 146.1 (2010); 180.2 (2011); 181.1 (2012); 191.8 (2013)
  - Energy exports: 310.1 (2008); 190.7 (2009); 254.0 (2010); 341.8 (2011); 350.0 (2012); 332.1 (2013)
    - Oil: 241.0 (2008); 148.7 (2009); 206.3 (2010); 277.5 (2011); 275.3 (2012); 257.5 (2013)
    - Gas: 69.1 (2008); 42.0 (2009); 47.7 (2010); 64.3 (2011); 74.8 (2012); 74.6 (2013)
- Imports: -291.9 (2008); -191.8 (2009); -248.7 (2010); -323.8 (2011); -349.5 (2012); -376.4 (2013)
- Services: -24.3 (2008); -20.1 (2009); -29.2 (2010); -35.9 (2011); -39.1 (2012); -43.7 (2013)
- Income: -48.9 (2008); -39.6 (2009); -48.6 (2010); -60.2 (2011); -50.7 (2012); -48.9 (2013)
- Capital and financial account: -131.0 (2008); -44.3 (2009); -26.1 (2010); -86.4 (2011); -67.3 (2012); -41.6 (2013)
- Overall balance: -38.9 (2008); 4.0 (2009); 36.3 (2010); 12.2 (2011); 22.6 (2012); 12.2 (2013)
- Net international reserves (memorandum): 427.1 (2008); 439.5 (2009); 479.4 (2010); 498.6 (2011); 521.2 (2012); 533.4 (2013)
- World oil price: 97.06 (2008); 61.87 (2009); 79.01 (2010); 104.0 (2011); 101.8 (2012); 94.2 (2013)
- Urals oil price: 94.46 (2008); 61.27 (2009); 76.81 (2010); 101.8 (2011); 99.6 (2012); 92.0 (2013)

### Fiscal operations and public finances (2009–13, percent of GDP unless indicated)
- General government revenue: 35.0 (2009); 35.5 (2010); 38.4 (2011); 37.5 (2012); 36.3 (2013)
  - Oil revenue: 8.9 (2009); 9.8 (2010); 11.7 (2011); 11.5 (2012); 10.1 (2013)
  - Nonoil revenue: 26.1 (2009); 25.7 (2010); 26.6 (2011); 26.0 (2012); 26.2 (2013)
- Expenditure: 41.4 (2009); 39.0 (2010); 36.8 (2011); 37.3 (2012); 36.9 (2013)
- Net lending (+)/borrowing (-) (overall balance): -6.3 (2009); -3.5 (2010); 1.6 (2011); 0.2 (2012); -0.7 (2013)
- Federal government revenue: 18.9 (2009); 18.4 (2010); 20.9 (2011); 20.4 (2012); 19.2 (2013)
  - Federal net lending (+)/borrowing (-): -5.9 (2009); -4.0 (2010); 0.8 (2011); -0.2 (2012); -1.1 (2013)
- Memorandum items:
  - General government nonoil primary balance: -14.6 (2009); -12.7 (2010); -9.6 (2011); -10.5 (2012); -9.8 (2013)
  - Oil fund(s): 11.9 (2009); 7.7 (2010); 6.6 (2011); 7.4 (2012); 7.5 (2013)
  - Reserve Fund: 4.7 (2009); 1.7 (2010); 1.5 (2011); 3.0 (2012); 3.5 (2013)
  - NWF: 7.1 (2009); 6.0 (2010); 5.1 (2011); 4.4 (2012); 4.0 (2013)
  - General government debt: 11.3 (2009); 11.8 (2010); 12.0 (2011); 11.5 (2012); 11.2 (2013)

### Monetary and financial sector (selected monetary accounts, 2008–13)
- Base money (various dates, billions of rubles): 4,392 (Dec 2008); 4,716 (Dec 2009); 4,517 (Mar 2010); 4,945 (June 2010); 5,147 (Sept 2010); 5,913 (Dec 2010); projections through 2013 up to 10,558
- Net international reserves (NIR) of monetary authorities (billions of U.S. dollars): 11,199 (2008); 12,755 (2009); 13,529 (2010); 14,460 (2011); 14,595 (2012); 14,304 (2013)
- Broad money (billions of rubles): 16,277 (2008); 19,096 (2009); 19,420 (2010); 20,445 (2011); 21,300 (2012); 23,791 (2013)
  - Ruble broad money: 12,976 (2008); 15,268 (2009); 15,639 (2010); 16,901 (2011); 17,690 (2012); 20,012 (2013)
- CPI inflation (12-month change, eop): 13.3 (2008); 8.8 (2009); 8.8 (2010); 6.1 (2011); 6.5 (2012); 6.5 (2013)
- Real credit to the economy (12-month change): 21.1 (2008); -5.7 (2009); -2.5 (2010); 0.0 (2011); 1.6 (2012); 3.8 (2013)

### Medium-term framework and reform scenario (2008–17 projections, selected)
- Baseline GDP growth (percent): 5.2 (2008); -7.8 (2009); 4.3 (2010); 4.3 (2011); 4.0 (2012); projections 3.9–3.8 through 2017 (Table 5 baseline) and alternative values in Table 6 reform scenario with GDP growth up to 6.0 (2017)
- External current account balance (percent of GDP): 6.2 (2008); 4.0 (2009); 4.7 (2010); 5.3 (2011); 4.7 (2012); projections decline into negative territory in later years in some scenarios
- Baseline fiscal balances (general government net lending/borrowing, percent of GDP): 4.9 (2008); -6.3 (2009); -3.5 (2010); 1.6 (2011); 0.2 (2012); projected -1.2 (2014) to -3.3 (2016) in Table 5; alternative reform scenario shows different trajectories (see Table 6)
- Gross reserves (end of period, billions of U.S. dollars): 427.1 (2008); 439.5 (2009); 479.4 (2010); 498.6 (2011); 521.2 (2012); projected 533.4 (2013) and varying later in scenarios

### Financial soundness and external vulnerability (selected indicators)
- Financial Soundness Indicators (selected, percent):
  - Capital to risk-weighted assets: 15.5 (2007); 16.8 (2008); 20.9 (2009); 18.1 (2010); 14.7 (2011); 14.7 (2012, Q1)
  - NPLs to total loans: 2.5 (2007); 3.8 (2008); 9.6 (2009); 8.2 (2010); 6.6 (2011); 6.8 (2012, Q1)
  - Loan loss provisions to total loans: 3.6 (2007); 4.5 (2008); 9.1 (2009); 8.5 (2010); 6.9 (2011); 7.0 (2012, Q1)
  - Return on assets: 3.0 (2007); 1.8 (2008); 0.7 (2009); 1.9 (2010); 2.4 (2011); 2.4 (2012, Q1)
- Indicators of External Vulnerability (selected):
  - Current account balance (billions of U.S. dollars): 77.0 (2007); 103.7 (2008); 49.5 (2009); 70.0 (2010); 98.8 (2011)
  - Gross official reserves (billions of U.S. dollars): 478.8 (2007); 427.1 (2008); 439.5 (2009); 479.4 (2010); 498.6 (2011)
  - Total external debt (billions of U.S. dollars): 471.0 (2007); 480.5 (2008); 467.2 (2009); 488.9 (2010); 511.4 (2011)
  - Total external debt (percent of GDP): 28.9 (2008); 38.2 (2009); 32.9 (2010); 27.6 (2011); 27.7 (2012 projected)
  - External debt-to-exports ratio: 91.9 (2008); 135.4 (2009); 109.8 (2010); 88.8 (2011); 90.6 (2012)
  - Gross external financing need (billions of U.S. dollars): 112.4 (2008); 98.6 (2009); 75.4 (2010); 42.5 (2011); 62.2 (2012 projected)
- Stress-test and debt dynamics notes:
  - Baseline public sector debt (percent of GDP): 11.3 (2009); 11.8 (2010); 12.0 (2011); 11.5 (2012); 11.2 (2013)
  - Debt-stabilizing non-interest current account (long-run) reported as -0.9 in the debt sustainability table

### Key projections and policy-relevant indicators (selected)
- CPI inflation (eop): 13.3 (2008); 8.8 (2009); 8.8 (2010); 6.1 (2011); 6.5 (2012); projected 6.5 (2013)
- Nominal GDP (billions of rubles, selected years): 38,809 (2009); 45,166 (2011); 54,369 (2012); 60,087 (2013); 66,561 (2014)
- Gross domestic investment (percent of GDP): 25.5 (2008); 18.9 (2009); 22.8 (2010); 25.5 (2011); 25.3 (2012); projected around 25.7 (2013)
- Gross national savings (percent of GDP): 31.7 (2008); 22.9 (2009); 27.5 (2010); 30.8 (2011); 30.0 (2012); projected 28.3 (2013)

*Source: RUSSIAN FEDERATION 2012 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND*

### ANNEX I. Russia: Risk Assessment Matrix

### ANNEX I. Russia: Risk Assessment Matrix

### Major Risks, Relative Likelihood, and Impact if Realized
- 1. Sharp oil price decline
  - Relative Likelihood: Medium
  - Source: A deepening of the recession in the euro area could result in a slowdown of global demand and a sharp decline in commodity prices.
  - Impact if Realized: High
    - Given Russia's high dependence on oil, the economy could enter into another recession, with high fiscal deficits, intensified capital outflows, and pressures on the ruble.

- 2. Sharp oil price increase
  - Relative Likelihood: Low
  - Source: Geopolitical risks could lead to a sharp increase in oil prices.
  - Impact if Realized: High
    - Rising oil prices could tip the economy into overheating territory, while weakening short-term incentives for policy adjustment and reform.

- 3. Acceleration of capital outflows
  - Relative Likelihood: Medium/High
  - Source: Capital outflows have been on an increasing trend during 2010/11. A spike in global risk aversion or renewed political tensions in Russia could cause a further intensification.
  - Impact if Realized: Low
    - The more flexible ruble will act as a shock absorber, while balance sheet mismatches have been reduced. Still, outflows would be a drag on investment.

- 4. Funding freeze
  - Relative Likelihood: Medium
  - Source: Intensified banking problems in the Euro Area could trigger a further regional or global liquidity squeeze.
  - Impact if Realized: Medium
    - During the 2008-09 crisis, the CBR was successful in providing large-scale liquidity support and prevented a banking crisis. It could likely manage another funding-squeeze episode.

- 5. Failure of a large bank
  - Relative Likelihood: Medium
  - Source: Persistent weaknesses in regulation and supervision, alongside widespread connected lending, continue to make the banking system vulnerable, as was illustrated by last year’s failure of the Bank of Moscow.
  - Impact if Realized: Low
    - Closure of systematically important banks is unlikely. Large state-owned banks are well capitalized, and large private banks could be rescued. Recent bank failures did not have systemic impact.

*The RAM shows events that could materially alter the baseline path—the scenario most likely to materialize in the view of the staff.*

### Key FSAP Recommendations and Implementation Status
- Short term (implementation within 12 months)
  - Empower the CBR to use professional judgment in interpreting laws and regulations, issuing enforceable risk management guidance, and applying it to individual banks. — Legislation pending
  - Approve pending amendments to expand CBR supervisory authority over bank holding companies and related parties, and eliminate restrictions on information-sharing with other domestic and foreign supervisors. — Legislation pending
  - Allow the CBR to sanction individual directors and managers, raise capital requirements on individual institutions, and impose restrictions on transactions between affiliates. — Legislation pending
  - Ensure the unified securities and insurance supervisor (FSFM) has the power to issue secondary regulation to interpret the law, as well as industry-wide binding norms. — Under discussion
  - Empower the FSFM to require insurers to have in place internal controls and risk management systems commensurate with the complexity of their business. — Legislation pending
  - Apply fit and proper requirements to directors and key management of insurers on an ongoing basis. — No decision
  - Make home-host notifications and cross-border cooperation in insurance mandatory for the FSFM. — No decision
  - Adopt pending legislation that empowers the FSFM to appoint a provisional administrator, freeze assets, and wind down distressed securities firms. — Legislation pending

- Medium term (implementation in 1–3 years)
  - Adopt a prompt remedial action framework for banks. — No decision 1/
  - Give the chairman and key members of FSFM fixed-term appointments. — No decision
  - Require government guarantee for all CBR loans that are unsecured or not backed by marketable collateral or guarantees. — No decision
  - Require repo transactions to take place using central counterparty clearing. — No decision
  - Set limits on concentration of collateral in the repo market. — No decision
  - Introduce a unified administration regime for all banks (systemic or otherwise) with broad powers for the administrator. — No decision 1/
  - Open-bank assistance such as loans, capital injections, nationalization by the Deposit Insurance Agency (DIA) should be restricted to systemic situations. — No decision 1/

- Note 1/: The authorities are preparing to upgrade the banking resolution framework in line with “Key Attributes for Effective Resolution” issued by the Financial Stability Board at the end of 2011, rather than taking up specific FSAP recommendations.

### Sensitivity of Inflation Expectations
- Analytical approach
  - The extent to which inflation expectations are anchored is examined by estimating the response of medium-term inflation expectations to a revision to the near-term inflation forecast, using consensus forecasts for 21 advanced and 12 emerging market (EM) inflation-targeting economies.
  - Regression allows for different responses to positive and negative inflation news via a dummy variable for negative inflation news.

- Findings for Russia
  - Upward inflation news:
    - Short-term inflation expectations are very responsive to upward inflation news. Example: when the current period inflation projection is revised upward by 1 percentage point, next year’s inflation projection (t+1) is revised by the same magnitude.
    - Sensitivity to a positive inflation shock in Russia is significantly higher than in advanced economies throughout the 5-year expectation horizon, and higher than EM peers in the short term (1 year); the gap narrows and disappears in medium-term projections.
  - Downward inflation news:
    - Market expectations on future inflation have hardly responded to downward inflation news, suggesting the private sector regards a downward inflation shock as transitory.
    - Such an asymmetry (stronger response to upward than downward shocks) does not exist in advanced economies and is opposite to patterns in inflation-targeting EM peers.
  - Interpretation:
    - More persistent and asymmetric inflation expectations in Russia appear to reflect weak credibility of the central bank’s commitment to low and stable inflation in the past.
    - Continuing improvements in the central bank’s credibility — thereby more firmly-anchored inflation expectations — will be key to the success of formal inflation targeting in Russia.

- Data notes
  - Consensus forecasts update the inflation survey twice a year, March and September. The change in the current period inflation expectations is the revision to the nearest end-year inflation projection between these biannual surveys.
  - EM inflation targeting economies include Brazil, Chile, Colombia, Czech Republic, Hungary, Indonesia, Mexico, Peru, the Philippines, Poland, Thailand, and Turkey.

### Fund Relations — Key Financial and Institutional Facts (As of May 31, 2012)
- I. Membership Status: Joined 06/01/1992; Article VIII.
- II. General Resources Account: Quota 5,945.40 (SDR Million) — 100.00 (Percent of Quota)
  - Fund holdings of currency 3,901.86 — 65.63
  - Reserve Position 2,043.56 — 34.37
- III. SDR Department: Net cumulative allocation 5,671.80 — 100.00
  - Holdings 5,685.50 — 100.24
- IV. Outstanding Purchases and Loans: None
- V. Latest Financial Arrangements (Type; Approval Date; Expiration Date; Amount Approved (SDR million); Amount Drawn (SDR million))
  - Stand-by; 07/28/99; 12/27/00; 3,300.00; 471.43
  - EFF; 03/26/96; 03/26/99; 6,305.57; 1,443.45
  - Of which SRF; 07/20/98; 03/26/99; 3,992.47; 675.02
  - EFF; 03/26/96; 03/26/99; 6,901.00; 4,336.26
- VI. Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Forthcoming Principal and Charges/Interest: 2012: 0.07; 2013: 0.07; 2014: 0.07; 2015: 0.07; 2016: (no value shown)
  - Total: 2012: 0.07; 2013: 0.07; 2014: 0.07; 2015: 0.07
- VII. Implementation of HIPC Initiative: Not Applicable
- VIII. Implementation of MDRI Assistance: Not Applicable
- IX. Exchange Arrangements:
  - De jure arrangement: other managed arrangement—namely, a controlled floating exchange rate arrangement. The ruble value of a bi-currency basket is used as the operating benchmark. The basket is composed of €0.45 and $0.55.
  - Effective October 13, 2010, the CBR eliminated the fixed trading band of Rub 26-41 against the bi-currency basket (in force since January 2009) and widened the moving intervention band from 3 to 6 rubles in three installments; maximum intervention amount reduced from $700 million to $500 million.
  - De facto exchange rate arrangement: other managed arrangement.
- X. Article IV Consultation: Russia is on the standard 12-month consultation cycle. The last consultation was concluded on September 9, 2011.
- XI. FSAP Participation and ROSCs: Participated in FSAP during 2002; FSSA discussed May 2003. FSAP update in fall 2007; FSSA discussed August 2008. FSAP financial stability assessment April 2011; FSSA discussed September 2011. Fiscal Transparency ROSC mission July 2003. Data ROSC module in October 2003; reassessment July 2010.
- XII. Resident Representatives: Mr. Odd Per Brekk, Senior Resident Representative, since March 1, 2009.

### World Bank–IMF Collaboration: Macrocritical Reform Areas and Division of Labor
- Shared assessment: Main macroeconomic challenges are to raise growth prospects and strengthen the banking system; reduce economic vulnerabilities and reinvigorate structural reforms.
- Five macrocritical reform areas identified:
  - Strengthening the fiscal framework
    - Key elements: (i) focusing on the nonoil balance as the anchor for fiscal policy; (ii) using a Permanent Oil Income Model (POIM) rule to ensure long-term fiscal sustainability; (iii) avoiding excessive use of supplemental budgets; and (iv) replenishing the Reserve Fund.
  - Public expenditure reforms
    - Key elements: (i) promoting aggregate fiscal discipline and strengthening public expenditure efficiency and management; (ii) strengthening capital budgeting in the road and rail sectors; and (iii) improving the efficiency of public employment.
  - Reforming the pension system
    - Key objectives: bringing down long-run fiscal costs and providing reasonable pension benefits to all pensioners current and future.
  - Strengthening the monetary policy framework
    - Key elements: (i) further increasing exchange rate flexibility; (ii) streamlining the set of monetary policy instruments; (iii) establishing a binding policy rate; (iv) gradually narrowing the policy interest rate corridor; and (v) further improving policy communications.
  - Financial sector stability assessment and financial sector development
    - Key deficiencies: need for prompt adoption of pending legislation on consolidated supervision and connected lending; granting supervisory discretion to the CBR; closer supervision of systemically important banks.

- Division of labor (selected)
  - Fund: Elaborated fiscal and monetary reform options; start dialogue on contingent liabilities and fiscal risks; present pension reform options; conducted financial sector assessment (March/April 2011).
  - World Bank: Preparing a new lending project for FY13 to strengthen the fiscal regime; providing technical assistance on program budgeting and public expenditure efficiency; published Public Expenditure Review (June 2011); participated in pension reform workshops; preparing a new lending project to support financial market expansion, regulatory modernization, and market infrastructure improvements.

*Source: ANNEX I. Russia: Risk Assessment Matrix; ANNEX II. Russia: Key FSAP Recommendations and Implementation; ANNEX III. Russia: Sensitivity of Inflation Expectations; and related informational annex material as provided in the source content.*

### 5. The teams have the following requests for information from their counterparts:

### 5. The teams have the following requests for information from their counterparts:

### Fund team requests
- To be kept informed of progress in the macrocritical reform areas under the Bank’s purview.
- To receive an analysis from the WB of the composition of the authorities’ 2012–14 medium-term budget, along the lines of the recent Public Expenditure Review.

### Bank team requests
- That the Fund share on a regular basis with WB and invite, as needed, Bank’s comments on policy notes, draft staff reports, and other relevant materials.
- That Bank staff be invited to attend policy meetings, as has already been the case with the 2011 Article Consultation Discussion.
- Timing: in the context of the Article IV and other missions (and at least semi-annually).

### Cross-cutting coordination
- Regular information exchange and invitations to comment/attend policy meetings, timed around Article IV and related missions, with a minimum cadence of semi-annually.

### Expected deliverables and interactions
- WB analysis of 2012–14 medium-term budget composition (modeled on recent Public Expenditure Review).
- Ongoing sharing by the Fund of policy notes, draft staff reports, and other relevant materials with the Bank for comment.

### Source
*RUSSIAN FEDERATION 2012 ARTICLE IV REPORT—INFORMATIONAL ANNEX (excerpt).*

### 3. Joint products in

### 3. Joint products in

### Joint products, next 12 months
- No joint products planned at this time, though the Bank participated in the Fund’s January 2012 pension reform workshop.

### I. Assessment of Data Adequacy for Surveillance (Statistical Issues — General)
- Data provision is broadly adequate for surveillance.
- Scope exists for further data improvements to meet emerging data demands for assessing external vulnerabilities.
- Russia is an SDDS subscriber, has a range of statistical dissemination formats, and reports data for the Fund’s statistical publications.

### National Accounts
- Data are broadly adequate for surveillance, but concerns exist about the reliability and consistency of quarterly GDP estimates.
- Rosstat started a national account development plan for 2011–17 to expedite compilation of quarterly GDP estimates consistent with annual GDP estimates.
- Methodological changes caused delayed backward revisions, impairing timely analysis; a historical revision of the industrial production index was released in July 2010.
- A historical revision of annual and quarterly GDP series, incorporating the 2006 agriculture census and methodological improvements, was made in the third quarter of 2010.
- Rosstat follows the 1993 SNA in general; scope exists for methodological improvements in volume measures of production-based GDP, including FISIM.
- Imputed rental services of owner-occupied dwellings are undervalued.
- Coverage of source data constrained by inadequate response to business surveys.
- Unavailability of balance sheet data impedes balance sheet vulnerability analysis; work is underway to disseminate the first quarterly sectoral accounts and balance sheets for 2012–14 by 2016.

### Price statistics
- Monthly CPI and PPI compiled using the Two-State (Modified) Laspeyres (2000=100), covering all regions.
- Rosstat publishes CPI indices for foodstuffs, non-food products, and services.
- Since September 2010, Rosstat has published price indices broken down by COICOP monthly.
- Detailed CPI weight data available on Rosstat website beginning in 2006; Prices in Russia publication beginning in 1995.
- Since 2009, detailed consumer expenditure data used for CPI weights are posted annually.
- Detailed PPI weight data published for 2006–11 on Rosstat website; detailed weights available only on the Russian version of the website.
- Further efforts recommended: improve treatment of seasonal items in the core inflation index and implement a new household budget survey.

### Government finance statistics
- Timeliness and level of detail can be improved for surveillance purposes.
- Since July 2010, economic classification of expenditures published monthly with a lag of about 1½ months, but historical consistency problems remain.
- Data on functional classification of expenditure and financing differ from international standards.
- Historical data on maturity structure of domestic and external federal debt are not published, except the most recent observation through SDDS.
- Monthly data on ruble guarantees not available prior to 2011; historical monthly foreign currency debt data not available prior to 2009 (quarterly data available since 2006).
- No integrated debt monitoring and reporting system.
- Reconciliation across fiscal datasets (budget execution, cash flow statement, GFSM 2001 format, SDDS) is difficult.
- Website dissemination could be improved by consolidating statistical links, providing definitions, methodology descriptions, and analytical materials in Russian and English.
- Authorities are working to address recommendations of the 2010 ROSC Data Module Update.

### Monetary statistics
- Since July 2008, the CBR provides IMF with summarized data for: (i) Central Bank Survey, (ii) Other Depository Corporations Survey, (iii) Depository Corporations Survey, (iv) Other Financial Corporation Survey, and (v) Financial Corporations Survey.
- Lack of comparable data on currency and maturity breakdowns of banking-sector assets and liabilities hinders balance sheet effects analysis.
- Adoption of full-detail SRFs (Standardized Report Forms) recommended by STA in 2007 would provide necessary currency and instrument breakdowns.
- Starting in July 2010, the CBR includes breakdown of positions by currency in the Surveys.

### External sector statistics
- Balance of payments data are broadly adequate for surveillance; significant improvements made.
- CBR published gross capital flow data for the private sector to facilitate analysis.
- Scope remains to improve coverage of components of current, capital, and financial accounts.
- Balance of payments compiled according to BPM5; CBR actively implementing BPM6 recommendations.
- CBR adjusts merchandise import data to account for “shuttle trade,” smuggling, and undervaluation; statistical techniques estimate transactions/positions of foreign-owned enterprises with production sharing agreements.
- CBR participates in the Fund’s Coordinated Direct Investment Survey.
- Headline reserve data reported weekly with a four-business day lag; Reserves Template reported with a lag of 20 days (exceeding SDDS timeliness requirement of one month).

### II. Data Standards and Quality
- Subscriber to the Special Data Dissemination Standard (SDDS) since January 31, 2005.
- SDDS flexibility option used for timeliness of data on central government operations.
- Data ROSC prepared in October 2003 (published May 14, 2004); reassessment in June–July 2010 (published February 28, 2011) concluded Russia’s macroeconomic statistics are generally of high quality and noted significant progress in adopting international methodologies.

### III. Reporting to STA (Optional)
- Data reported for publication in: International Financial Statistics (IFS), Government Finance Statistics Yearbook, Direction of Trade Statistics, and Balance of Payments Statistics Yearbook.
- Monetary data reported to IFS are in summarized survey format rather than full-detail SRFs disaggregated by currency and counterparty sector.

### Table of Common Indicators Required for Surveillance (as of June 30, 2012) — selected entries
- Exchange Rates: Date of latest observation 6/30/12; Date received 6/30/12; Frequency: D; Frequency of reporting: D; Frequency of publication: D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 6/1/2012; Date received 6/6/12; Frequency: M; Frequency of reporting: M; Frequency of publication: M.
- Reserve/Base Money (narrow definition): Date of latest observation 6/20/12; Date received 6/24/12; Frequency: D; Frequency of reporting: W; Frequency of publication: W; Data quality (methodological soundness): O, O, LO, LO; Data quality (accuracy/reliability): O, O, O, O, O.
- Broad Money: Date of latest observation 6/1/2012; Date received 6/27/12; Frequency: M; Frequency of reporting: M; Frequency of publication: M; Data quality (methodological soundness): O,O,LO,LO; Data quality (accuracy/reliability): O,O,O,O,O.
- Consumer Price Index May 2012: Date received 6/6/12; Frequency: M; Data quality (methodological soundness): O, LO, LNO, O; Data quality (accuracy/reliability): O, O, O, O, O.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Latest observation April, 2012; Date received 6/7/12; Frequency: M; Data quality (methodological soundness): LO, LNO, LO, O; Data quality (accuracy/reliability): O, O, LO, O, NA.
- External Current Account Balance: Q1 2012; Date received 4/5/12; Frequency: Q; Data quality (methodological soundness): O, O, O, L O; Data quality (accuracy/reliability): LO, O, O, O, O.
- International Investment Position: 2010; Date received 6/30/12; Frequency: A.

### Public Information Notice — IMF Executive Board Conclusions (August 2, 2012; summary)
- Russia’s recovery continued in 2011 with growth of 4.3 percent (same as in 2010).
- Momentum continued in Q1 2012 with strong real wage and consumption growth.
- Unemployment declined to pre-crisis lows; capacity utilization in manufacturing recovered to 2007–08 level; output gap estimated to be closed.
- Inflation has come down significantly recently; staff’s measure of core inflation remains high at around 6 percent.
- Current account strengthened in 2011 aided by high oil prices; net capital outflows persist, mirroring the current account surplus.
- Credit growth rebounded strongly in 2011 following two years of stagnation; consumer credit grew strongly.
- Fiscal policy tightened in 2011 but remains procyclical:
  - Federal nonoil deficit declined from 12.7 percent of GDP in 2010 to 9.8 percent of GDP in 2011.
  - 2012 budget implies an increase in the federal nonoil deficit of about 1 percent of GDP.
- CBR tightened monetary policy in 2011 (CBR deposit rate 2¾ percent in January to CBR repo rate 5¼ percent by year-end); policy effectively on hold since then.
- Near-term outlook: Real growth projected at around 4 percent in 2012 and 2013; inflation projected to rebound to 6½ percent by end-2012.

### Executive Board Assessment — key recommendations and observations
- Short-term challenge: manage domestic demand to avoid overheating.
- Medium-term challenge: realize growth potential by maintaining macro stability, strengthening policy framework, and advancing structural reforms.
- Directors recommended ambitious fiscal consolidation to reduce overheating pressures and ensure intergenerational equity; some Directors favored a cautious approach given global uncertainty.
- Importance of a strengthened fiscal framework and improvements to the proposed fiscal rule to decouple fiscal stance from short-term oil price variations; scope for further improvements to rebuild the Reserve Fund.
- Monetary policy: welcomed greater exchange rate flexibility; recommended gradual further tightening to contain underlying pressures and anchor expectations; encouraged strengthening monetary policy tools and communication to prepare for formal inflation targeting by 2014.
- Financial system: welcomed improvements and resilience; urged vigilance on asset quality amid rapid credit growth and volatile oil prices; recommended expediting FSAP recommendations (consolidated supervision, connected lending legislation, expanded central bank powers).
- Structural reforms: crucial to increase investment, diversify the economy, and raise potential growth; encouraged using WTO accession momentum to strengthen rule of law, reduce corruption, and scale back state involvement including transparent privatization.

### Selected Macroeconomic Indicators, 2009–13 (summary of table)
- Real GDP (annual percent change): 2009 -7.8; 2010 4.3; 2011 4.3; 2012 4.0; 2013 3.9.
- Consumer prices (period average): 2009 11.7; 2010 6.9; 2011 8.4; 2012 5.0; 2013 6.5.
- Consumer prices (end of period): 2009 8.8; 2010 8.8; 2011 6.1; 2012 6.5; 2013 6.5.
- GDP deflator (annual percent change): 2009 2.0; 2010 11.6; 2011 15.4; 2012 6.3; 2013 6.6.
- General government net lending/borrowing (percent of GDP): 2009 -6.3; 2010 -3.5; 2011 1.6; 2012 0.2; 2013 -0.7.
- Revenue (percent of GDP): 2009 35.0; 2010 35.5; 2011 38.4; 2012 37.5; 2013 36.3.
- Expenditures (percent of GDP): 2009 41.4; 2010 39.0; 2011 36.8; 2012 37.3; 2013 36.9.
- Nonoil balance (general government, percent of GDP): 2009 -15.2; 2010 -13.3; 2011 -10.2; 2012 -11.3; 2013 -10.7.
- Base money (annual percent change): 2009 7.4; 2010 25.4; 2011 20.9; 2012 23.9; 2013 19.2.
- Ruble broad money (annual percent change): 2009 17.7; 2010 31.1; 2011 22.6; 2012 23.7; 2013 20.7.
- Total merchandise exports, fob (billions of U.S. dollars): 2009 303.4; 2010 400.1; 2011 522.0; 2012 531.1; 2013 523.9.
- Total merchandise imports, fob (billions of U.S. dollars): 2009 -191.8; 2010 -248.7; 2011 -323.8; 2012 -349.5; 2013 -376.4.
- External current account (billions of U.S. dollars): 2009 49.5; 2010 70.0; 2011 98.8; 2012 89.9; 2013 53.8.
- Gross international reserves (billions of U.S. dollars): 2009 439.5; 2010 479.4; 2011 498.6; 2012 521.2; 2013 533.4.
- Nominal GDP (billions of U.S. dollars): 2009 1,232; 2010 1,486; 2011 1,850; 2012 1,919; 2013 2,036.
- World oil price (U.S. dollars per barrel, WEO): 2009 61.8; 2010 79.0; 2011 104.0; 2012 101.8; 2013 94.2.

*Source: 2012 ARTICLE IV REPORT—INFORMATIONAL ANNEX, Russian Federation (International Monetary Fund).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12217.pdf_