## _cr13310

## Source details

**Canonical URL:** [_cr13310](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13310.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13310.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13310.pdf.json)

---

### Context and Key Findings
- Since 2000, Russia increased its per capita income from 33 to 51 percent of the OECD average.
- Fiscal and external buffers are being rebuilt; unemployment has declined to near historic lows.
- Inflation has been in single digits since 2009.
- New policy anchors: a new oil price-based fiscal rule, increased exchange rate flexibility, and a shift towards IT.
- WTO accession in 2012 and Russia’s positions in APEC, the G-20 and the G-8 signal increasing global integration.
- Growth potential remains substantial given a relatively well-educated labor force, proximity to key markets, and natural resource endowment.
- Key constraints dampening medium-term prospects:
  - The economy is now likely at or near full capacity.
  - The 2000s oil price rise is unlikely to be repeated.
  - Negative demographics and a weak business climate present a drag on growth.
  - Increased government presence in key sectors such as energy and banking has dampened private investment and competition.

### Output Gap and Capacity
- Model-based estimates suggest the output gap is near zero (multivariate filtering method).
- Supporting indicators:
  - Core and headline inflation remain above the CBR’s headline inflation target.
  - Unemployment rate at 5.4 percent is near historic low levels.
  - Capacity utilization in industrial sectors has returned to its pre-crisis peak of early 2008.

### Government Growth Strategy
- Key elements:
  - Lowering the cost of doing business:
    - Target: top 20 Doing Business (World Bank) rating by 2018; Russia moved up six places to 112 in the most recent ranking.
    - Public-private action plans targeting customs, regulatory environment, construction permits, and access to electricity.
    - Federal and regional ombudsmen appointed; authorities report over 80 disputes resolved by the federal ombudsman.
    - Draft law submitted to Duma proposing amnesty for individuals who committed economic crimes.
  - Increasing the financial sector’s contribution to growth:
    - Reduce cost of borrowing by reducing administrative burdens on banks, strengthening creditor rights, enhancing competition, and granting limited state guarantees for SMEs.
    - Aim to develop Moscow as an international financial center.
  - Increasing public sector efficiency and investment:
    - Implemented the new fiscal rule.
    - Drafting new PPP legislation and shifting to program-based budgeting.
    - Plan to introduce compulsory public audits for large state-participation investment projects (planned to begin in 2013).
    - Gradual privatization of state corporations.
    - Plan to support PPP infrastructure projects through loans from the National Wealth Fund (NWF).

### Implementation of Past IMF Recommendations
- Directors’ 2012 recommendations: strengthen fiscal framework, tighten policy stance, improve monetary operations, implement 2011 FSAP recommendations, and implement structural reforms (including the business environment).
- Progress since 2012:
  - Implemented: new fiscal rule; tightened monetary policy; improved monetary operations; strengthened financial sector supervision.
  - Slow or limited progress: pension reform and broader structural reforms to improve the business environment.
- Fiscal policy specifics:
  - New oil price-based fiscal rule implemented; it delinks fiscal stance from short-run oil price fluctuations but does not allow for sufficient fiscal adjustment and oil revenue savings.
  - Reserve Fund higher but still below government target.
  - Pension reform still under consideration.
- Monetary policy specifics:
  - Monetary stance tightened in September 2012 but underlying inflation remains elevated.
  - CBR gradually aligning refinancing instruments; first inflation expectation survey published earlier this year.
- Financial sector specifics:
  - CBR implemented prudential measures to moderate household credit growth.
  - Amendments to Banking Law consistent with 2011 FSAP recommendations adopted.
  - Plan to create a mega-supervisor by merging FSFM supervisory functions into the CBR is moving ahead.
- Structural policies:
  - Some improvements in dispute resolution and tax administration.
  - Little progress regarding SMEs; governance; infrastructure bottlenecks.
  - Privatization slowed with focus shifted towards attracting private capital infusions to SOEs.

### Recent Developments and Macroeconomic Indicators
- Growth:
  - Growth began slowing around mid-2012 and fell to 3.4 percent for the year (2012), from about 4½ percent in 2010-11.
  - Weakened further in Q1 2013 to 1.6 percent (y-o-y).
  - Short-term indicators mixed but suggest some recovery in recent months and a stronger growth outlook for the remainder of the year.
- Inflation:
  - Inflation rose from 3.6 percent in May 2012 to 7.4 percent y-o-y in May 2013, mostly due to food price shocks and regulated tariff hikes.
  - Inflation declined to 6.9 percent (y-o-y) in June 2013.
  - Staff’s measure of core inflation has remained slightly below headline inflation since Q4 2012.
- External sector and exchange rate:
  - Mid-2013 ruble basket rate depreciated by 6 percent, the highest among emerging European countries, prompting modest CBR interventions; the ruble subsequently rebounded modestly.
  - Finance Ministry will begin purchasing foreign exchange on an ongoing basis for deposit into government oil savings funds managed by the CBR.
  - CBR utilizes an exchange rate band mechanism.
- Current account and capital flows:
  - Current account surplus declined to $75 billion in 2012 (3.7 percent of GDP), from $97 billion in 2011 (5.1 percent of GDP).
  - Q1 2013 current account surplus fell by $11 billion compared to 2012Q1.
  - Exports remain heavily weighted towards energy: energy accounted for two thirds of exports in 2012.
  - Net private capital outflows were $54 billion (2.7 percent of GDP) in 2012; outflows continued into early 2013 and increased further in May/June.
- Financial market developments:
  - Global financial market turbulence and announced possible tapering in the U.S. put pressure on the exchange rate, the local bond market, and equities, and may have contributed to some acceleration of capital outflows.
  - Events in Cyprus so far have not had a significant impact on Russia.

### Policy Implications and Recommendations
- Given the estimated output gap at or near zero:
  - Expansionary monetary or fiscal policies are not advised.
  - Expansionary policies would at best provide a modest and unsustainable increase in growth and risk intensifying inflationary pressures and higher exchange rate volatility.
- To achieve higher sustainable growth, adopt a new growth model focused on supply-side improvements and structural reforms:
  - Strengthen institutions and overcome supply-side constraints.
  - Prioritize implementation of reforms to improve the business environment, increase private investment and competition, and reduce the cost of doing business.
  - Increase the financial sector’s contribution to growth, improve public sector efficiency and investment, and implement PPP and privatization plans where feasible.
- Monitor spillover implications for CIS and Baltic countries due to close linkages via trade and remittances.

### Spillovers and Cyprus
- CIS linkages to Russia are strong, mainly through trade and remittances.
- The 2008/09 contraction in Russia severely affected the region through drops in Russia’s imports from and remittances to the region, and ruble depreciation triggered devaluations in most CIS countries.
- Imports and remittances have fully recovered from the crisis amid Russia’s robust growth in 2010–12; Russia’s imports from CIS countries have surpassed the pre-crisis peak.
- Remittances are particularly important for Moldova, Kyrgyz Republic, and Tajikistan, where they represent 15-40 percent of GDP.
- Recent slowdown in Russia has adversely affected the region; completion of the labor-intensive Sochi project at the beginning of 2014 may temporarily reduce remittances. A prolonged slowdown in Russia would have larger adverse spillovers.
- Cyprus-specific points:
  - Russia’s direct exposure to Cyprus bank restructuring is small; lost deposits of Russian entities are estimated at about 0.1 percent of Russian GDP.
  - Cyprus is Russia’s largest partner for both inward and outward FDI, though much is round-tripping and netting agreements exist.
  - FDI stock (Reported by Russia): Russia to Cyprus 122; Cyprus to Russia 129.
  - FDI stock (Reported by Cyprus): Russia to Cyprus 26; Cyprus to Russia 19.
  - Cypriot capital controls could complicate transactions and movements of funds for Russian-controlled entities routed via Cyprus.

### Fiscal Policy and Public Finances
- General government balance: surplus 0.4 percent of GDP in 2012; turning negative in 2013 as oil prices weakened.
- Non-oil fiscal stance roughly neutral; non-oil revenue growth weak—particularly VAT and profit taxes.
- Reserve Fund balance rose from 3 percent of GDP in 2012 to 4.1 percent of GDP as of mid-2013—short of the government’s 7 percent of GDP medium-term target.
- NWF stands at 4.0 percent of GDP.
- Projected privatization receipts for 2013–15 have been scaled back.
- Average duration of government debt extended to 4.5 years, up from 3.5 years last year.
- New oil-price based fiscal rule approved December 2012 places strict limits on federal spending; additional spending supported via:
  - a one percent of GDP increase in loan guarantees in 2013;
  - up to R450 billion (0.7 percent of GDP) in lending from the NWF for planned PPP infrastructure investments;
  - Far East investment incentives involving tax exemptions over 2014-2027.
- Government budgets under pressure from mandated wage increases and preparations for the 2014 Sochi Olympics and the 2018 World Cup.

### External Sector Assessment and Reserves
- Staff’s assessment: Russia’s external position in 2012 broadly in line with medium-term fundamentals; authorities agreed.
- IMF’s composite reserve adequacy metric for Russia was 186 percent as of end-2012.
- Cyclically-adjusted current account surplus in 2012 estimated at around 3¾ percent of GDP; regression analysis points to a modest real exchange rate undervaluation of 0–10 percent; alternative indicators suggest the ruble was about 13 percent overvalued.
- With oil prices projected to decline gradually, the oil price-based fiscal rule envisages a medium-term fiscal adjustment, which will be insufficient to improve the current account balance under the baseline scenario.

### Monetary Policy, Inflation, and Inflation Targeting
- CBR targets:
  - End-2013 inflation between 5 and 6 percent.
  - 2014–15 target range 4 to 5 percent.
  - Considering a move to a point target of 4.5 percent with a symmetric tolerance band of +/- 1.5 percentage points beginning 2014–15.
  - Preparations for adopting full-fledged inflation targeting by end-2014 continue.
- Main policy rate on hold since September 2012.
- In July, CBR launched a new 12-month floating rate refinancing facility secured by nonmarketable assets and guarantees, with a minimum interest rate of 25 bps above the standard repo facility.
- CBR now has about a dozen facilities for liquidity provision and absorption, maturities from overnight to one year.
- Box 6: Next steps toward IT include narrowing the interest rate corridor, shifting to more active open market operations, increasing exchange rate flexibility, improving policy transparency, creating a separate forecasting department, publishing inflation expectation surveys and CBR forecasts, and consolidating monetary operations instruments and rates.

### Banking Sector, Credit Growth, and Regulation
- Real credit growth decelerated to 11.3 percent (y-o-y) in Q1 2013, down from 15 percent per annum average during 2011–12.
- Retail lending expanded by around 40 percent and uncollateralized retail lending grew by about 55 percent y-o-y in 2012.
- Reported average capital adequacy ratio declined from 18.1 percent at end-2010 to 13.4 percent in February 2013; CBR estimates two thirds of this decline due to expansion of bank lending and one third due to adoption of more conservative prudential regulations.
- NPL ratio has been declining due to rapid credit growth, but NPLs grew in nominal terms; indications of asset quality deterioration in 2013H1 suggest NPLs may increase quickly once credit growth slows.
- CBR introduced higher provisioning requirements for uncollateralized retail loans effective January 2013 and increased risk weights for consumer loans effective July 2013.
- Russia’s credit-to-GDP ratio of 52 percent is below the average of peer countries.
- Bank competition hindered by high concentration at the top and excessive fragmentation at the bottom; state-owned banks account for more than half of total loans and deposits.
- Authorities approved key amendments to the Banking Law; plan to merge FSFM supervisory functions into the CBR to create a mega-supervisor.
- CBR plans to implement Basel III capital frameworks within the next six months and the IRB no earlier than 2015.

### Outlook and Risks
- Staff baseline projections:
  - Real GDP growth to accelerate in 2H13 and reach 2½ percent in 2013.
  - Growth to pick up to 3¼ percent in 2014 under improved global environment and no downside risks (government forecast 3.7 percent).
  - Inflation projected to come down to about 6 percent (y-o-y) by end-2013.
  - Inflation expected to be around 5.5 percent in 2014 without further policy adjustment (government expects 5.3 percent).
  - Current account surplus projected to continue declining in 2014 amid slightly weaker energy prices.
  - Capital outflows expected to continue, albeit at a gradually slower pace.
- Risks tilted to the downside, including:
  - Sharp decline in oil and natural gas prices (staff’s adverse scenario: sharp and permanent decline—e.g., due to a shale gas/oil revolution—would cause significant drop in growth, pressure on external and fiscal accounts, quick depletion of Reserve Fund, and slow growth recovery).
  - Acceleration of capital outflows and intensified international banking problems.
  - Domestic risks: deteriorating investment climate from political uncertainty and social protests, slow structural reforms, and political pressures for near-term policy stimulus.

### Shock Resilience and Debt
- Russia better equipped to handle adverse shocks due to:
  - More flexible exchange rate;
  - Improved crisis management capacity to provide liquidity to banks;
  - Higher international reserves and reduced balance sheet mismatches;
  - New oil price-based fiscal rule guiding short-term fiscal responses.
- Reserve Fund below its target level raises risk of procyclical fiscal adjustments in the event of large and lasting oil price declines.
- Public and gross external debt levels in 2012 were about 13 and 29 percent of GDP, respectively; debt sustainability is not an immediate concern.

### Medium-Term Potential and Reform Scenario
- Baseline potential growth modest at 3½ percent absent further structural reforms; inflation will remain elevated at 5½ percent, and external current account surplus would gradually decline.
- Reform scenario: Russia could achieve medium-term growth of about 5 percent if supported by:
  - stronger and more growth-friendly fiscal adjustment (and higher oil savings);
  - monetary policy fully focused on meeting inflation targets;
  - a more competitive financial system;
  - energy sector reform;
  - more progress with other structural reforms.
- Under reform scenario, improved financial intermediation and labor market flexibility would boost productivity; a better business climate and stable macroeconomic environment would raise investment and potential growth.

### Authorities’ Views (Selected)
- Authorities broadly agreed with staff risk assessments but more optimistic on medium-term growth.
- Ministry of Economic Development projects a medium-term growth rate of about 4½ percent and inflation of around 5 percent.
- On fiscal policy:
  - Authorities estimate Reserve Fund will reach about 6¼ percent of GDP by 2018 vs. staff estimate of about 2.7 percent under unchanged policies.
  - Authorities support additional infrastructure spending and view PPPs backed by NWF lending as important and consistent with NWF mandate.
  - Plan to enhance spending efficiency and introduce a property tax over the next five years, shift to program budgeting next year, and prepare a 2030 fiscal strategy.
- On pension reform:
  - Authorities rejected increasing the retirement age in favor of an incentive-based system and a shift to a points-based pension system.
  - Beginning 2014, default contribution rate to Pillar II will fall from 6 to 2 percentage points of wages.
- On monetary policy:
  - Commit to adopt IT by end-2014.
  - Expect current stance, lower planned utility price hikes, and absence of adverse food price shocks to bring inflation into targeted range by September 2013 and into the 2014 target range thereafter.
- On banking:
  - Authorities saw no tangible systemic financial sector risks at present, but shared concerns about diminished capital adequacy ratios and rapid consumer lending growth.
  - Noted benefits of CBR ownership of Sberbank (social functions, high ratings); acknowledged potential conflicts of interest.

### Banking Sector Recommendations and State Ownership
- Gradually divest from dominant banks; further divestiture of Sberbank shares consistent with Strategy for Development of the Banking Sector until 2015.
- Strengthen corporate governance in government-owned financial institutions; increase independent directors.
- Promote bank consolidation to reduce supervisory burden and diversify bank balance sheets.
- Strengthen bank competition via reduced public bank ownership, pricing transparency, consumer protection, stronger credit bureaus and collateral registries.
- Strengthen transparency; implement AML and fit and proper measures to prevent “pocket banks” and capital outflows.
- Authorities noted CBR stress tests: 308 credit institutions (accounting for 1/3 of banking system assets) may have a capital deficit in a ‘severe’ scenario amounting to rubles 522bn; average CAR would fall to 10.6 percent. The ‘severe’ scenario envisages real GDP contraction of 5 percent and oil price US60/barrel.

### Fiscal Rule Assessment (Annex I) — Key Points
- New fiscal rule caps federal expenditures at sum of: non-oil revenues; oil revenues calculated at a benchmark oil price; and net financing of one percent of GDP.
- Benchmark price: backward looking ten-year (initially five-year) average of Urals oil prices; for 2013 the five-year (2008-2012) average equivalent to US$91/barrel.
- When current oil prices above benchmark, oil savings deposited in Reserve Fund until it reaches 7 percent of GDP; thereafter 50 percent of additional oil-related savings to NWF and 50 percent for infrastructure/other projects.
- Key shortcomings:
  - Insufficient oil savings projected; Reserve Fund projected to remain below 7 percent of GDP under baseline.
  - Rule not fully binding until 2016 because medium-term budget law sets minimum expenditure commitments on a rolling three-year basis.
  - Possibility of diversion of annual oil savings (ex ante deposits prescribed in Budget Law; deposits can be financed by issuing more debt or reduced by utilizing oil savings to cover net borrowing).
  - Limited response to non-oil shocks; permitted diversion to cover non-oil revenue shortfalls limited to oil savings generated in same year.
  - Expenditure limits can be circumvented via off-budget mechanisms (e.g., loan guarantees).
  - Susceptibility to manipulation via macroeconomic assumptions (exchange rate and nominal GDP set by Ministry of Economic Development).
- Recommendations:
  - Tighten rule to reach minimum Reserve Fund of 7 percent of GDP by 2018 and then rebuild NWF.
  - Remove option to divert oil savings to cover shortfalls in privatization or non-oil revenue.
  - Scale back or spread planned loan guarantees; avoid new loan guarantees to be paid out of future budgets.
  - Maintain independent realistic forecasts for key macro variables.
  - Revisit minimum expenditure commitments in medium-term budgets.
  - Eliminate the 50/50 NWF distribution rule in favor of a framework considering infrastructure needs, likely net returns, and Dutch Disease considerations.

### Selected Quantitative Indicators and Projections (2010–14, and other specific figures preserved)
- Growth and demand:
  - Real GDP growth: -7.8 (2009); 4.5 (2010); 4.3 (2011); 3.4 (2012); 2.5 (2013); 3.3 (2014).
  - Real domestic demand growth: -14.2 (2009); 8.5 (2010); 9.1 (2011); 5.3 (2012); 4.3 (2013); 4.4 (2014).
  - Investment growth: -41.0 (2009); 28.5 (2010); 22.6 (2011); 6.6 (2012); 3.5 (2013); 4.2 (2014).
- External and reserves:
  - Exports (billions USD, f.o.b): 297.2 (2009); 392.7 (2010); 515.4 (2011); 529.1 (2012); 521.6 (2013); 520.0 (2014).
  - Current account (billions USD): 50.4 (2009); 67.5 (2010); 97.3 (2011); 74.8 (2012); 45.7 (2013); 34.0 (2014).
  - Current account (percent of GDP): 4.1 (2009); 4.4 (2010); 5.1 (2011); 3.7 (2012); 2.1 (2013); 1.5 (2014).
  - Gross international reserves (billions USD): 439.5 (2009); 479.4 (2010); 498.6 (2011); 537.6 (2012); 537.7 (2013); 537.7 (2014).
  - Months of imports: 21.3 (2009); 17.9 (2010); 14.6 (2011); 14.5 (2012); 13.7 (2013); 13.0 (2014).
- Fiscal aggregates:
  - General government revenue (percent of GDP): 35.0 (2009); 34.6 (2010); 37.4 (2011); 36.9 (2012); 36.8 (2013); 36.1 (2014).
  - General government expenditures (percent of GDP): 41.4 (2009); 38.0 (2010); 35.8 (2011); 36.5 (2012); 37.5 (2013); 36.8 (2014).
  - General government net lending/borrowing (overall balance, percent of GDP): -6.3 (2009); -3.4 (2010); 1.5 (2011); 0.4 (2012); -0.6 (2013); -0.7 (2014).
  - Nonoil balance (general government, percent of GDP): -15.2 (2009); -13.0 (2010); -10.0 (2011); -10.9 (2012); -10.8 (2013); -9.7 (2014).
- Prices:
  - Consumer prices (period average): 11.7 (2009); 6.9 (2010); 8.4 (2011); 5.1 (2012); 6.9 (2013); 5.8 (2014).
  - CPI end of period: 8.8 (2009); 8.8 (2010); 6.1 (2011); 6.6 (2012); 6.1 (2013); 5.5 (2014).
- Banking and credit:
  - Real credit growth: 11.3 percent (y-o-y) in Q1 2013.
  - Retail lending growth: around 40 percent in 2012; uncollateralized retail lending grew about 55 percent y-o-y in 2012.
  - Reported average capital adequacy ratio: 18.1 percent at end-2010 → 13.4 percent in February 2013.
  - Russia’s credit-to-GDP ratio: 52 percent.
- Baseline staff projections (selected):
  - Real GDP growth: 1.5 percent in 2013 and 3 percent in 2014 (staff baseline in revisions noted as 1½ percent and 3 percent).
  - Inflation (year-on-year): abating to 6.2 percent by end-2013; remaining above the authorities’ 4 to 5 percent target in 2014.
- Annex I table (selected lines, percent of GDP unless otherwise indicated):
  - Federal Government Non-Oil Balance (Authorities): -10.4 -9.7 -8.7 -8.5.
  - Reserve Fund (Authorities): 3.0 4.0 4.1 4.1.
  - NWF (Authorities): 4.3 4.2 3.9 3.6.
  - Urals spot (Authorities): 110.5 105.0 101.0 100.0 (U.S. dollars per barrel).
  - Staff baseline Urals spot: 110.3 103.5 97.4 93.8.
  - Oil Benchmark Price for 2013: US$91/barrel (five-year 2008-2012 average) was used for 2013 budget.

### Statistical Issues and Data Adequacy
- Data provision broadly adequate for surveillance; scope for further improvements.
- Russia subscribes to SDDS since January 31, 2005.
- National accounts: concerns about reliability and consistency of quarterly GDP estimates; Rosstat started national account development plan for 2011–17.
- Price statistics: CPI and PPI compiled using Two-Stage (Modified) Laspeyres (2000=100); weights updated annually; population weights used for regional indices (may bias CPI).
- Government finance statistics: main gaps include lack of quarterly primary data for general government operations and a need for an integrated debt monitoring and reporting system.
- Monetary statistics: CBR reports summarized surveys; adoption of SRFs in full detail recommended.
- External sector statistics: balance of payments broadly adequate; from 2012 compiled according to BPM6; historical revisions made.

*Source: International Monetary Fund (IMF) staff report excerpt.*

### 1. Russian Economy is Close to Full Capacity  ______________________________________________________  5

### 1. Russian Economy is Close to Full Capacity

### Context and Key Findings
- Since 2000, Russia increased its per capita income from 33 to 51 percent of the OECD average.
- Fiscal and external buffers are being rebuilt; unemployment has declined to near historic lows.
- Inflation has been in single digits since 2009.
- New policy anchors: a new oil price-based fiscal rule, increased exchange rate flexibility, and a shift towards IT.
- WTO accession in 2012 and Russia’s positions in APEC, the G-20 and the G-8 signal increasing global integration.
- Growth potential remains substantial given a relatively well-educated labor force, proximity to key markets, and natural resource endowment.
- However, medium-term prospects are increasingly dampened by supply-side constraints:
  - The economy is now likely at or near full capacity.
  - The 2000s oil price rise is unlikely to be repeated.
  - Negative demographics and a weak business climate present a drag on growth.
  - Increased government presence in key sectors such as energy and banking has dampened private investment and competition.

### Output Gap and Capacity (Box 1)
- Model-based estimates suggest the output gap is near zero (multivariate filtering method).
- Supporting indicators:
  - Core and headline inflation remain above the CBR’s headline inflation target.
  - Unemployment rate at 5.4 percent is near historic low levels.
  - Capacity utilization in industrial sectors has returned to its pre-crisis peak of early 2008.
- Graphical indicators in the text show Real GDP, Potential GDP, and Output Gap with a projected baseline to 2018.

### Government Growth Strategy (Box 2)
Key elements include:
- Lowering the cost of doing business:
  - Target: top 20 Doing Business (World Bank) rating by 2018; Russia moved up six places to 112 in the most recent ranking.
  - Public-private action plans targeting customs, regulatory environment, construction permits, and access to electricity.
  - Federal and regional ombudsmen for entrepreneur’s rights appointed; authorities report over 80 disputes resolved by the federal ombudsman.
  - Draft law submitted to Duma proposing amnesty for individuals who committed economic crimes.
- Increasing the financial sector’s contribution to growth:
  - Reduce cost of borrowing by reducing administrative burdens on banks, strengthening creditor rights, enhancing competition, and granting limited state guarantees for SMEs.
  - Aim to develop Moscow as an international financial center.
- Increasing public sector efficiency and investment:
  - Implemented the new fiscal rule.
  - Drafting new PPP legislation and shifting to program-based budgeting.
  - Plan to introduce compulsory public audits for large state-participation investment projects (planned to begin in 2013).
  - Gradual privatization of state corporations.
  - Plan to support PPP infrastructure projects through loans from the National Wealth Fund (NWF).

### Implementation of Past IMF Recommendations (Box 3)
- Directors’ 2012 recommendations: strengthen fiscal framework, tighten policy stance, improve monetary operations, implement 2011 FSAP recommendations, and implement structural reforms (including the business environment).
- Progress since 2012:
  - Implemented: new fiscal rule; tightened monetary policy; improved monetary operations; strengthened financial sector supervision.
  - Slow or limited progress: pension reform and broader structural reforms to improve the business environment.
- Specifics from the table of recommendations and implemented policies:
  - Fiscal policy:
    - Recommendation: ambitious medium-term fiscal consolidation; rebuild Reserve Fund; anchor public finances with rule to decouple fiscal stance from oil price fluctuations; pension reform.
    - Outcome: Non-oil deficit remains high; Reserve Fund higher but still below government target. New oil price-based fiscal rule implemented; it delinks fiscal stance from short-run oil price fluctuations but does not allow for sufficient fiscal adjustment and oil revenue savings. Pension reform still under consideration.
  - Monetary policy:
    - Recommendation: tighten monetary stance; make the repo rate the primary CBR policy rate; consolidate refinancing instruments; publish inflation expectation surveys and forecasts.
    - Outcome: Monetary stance tightened in September 2012 but underlying inflation remains elevated. The CBR is gradually aligning refinancing instruments. The first inflation expectation survey was published earlier this year.
  - Financial sector:
    - Recommendation: monitor rapid household credit growth; implement legislative changes from 2011 FSAP; equip FSFM with supervisory powers.
    - Outcome: CBR implemented prudential measures to moderate household credit growth. Amendments to Banking Law consistent with the 2011 FSAP recommendations have been adopted. Plan to create a mega-supervisor by merging FSFM supervisory functions into the CBR is moving ahead.
  - Structural policies:
    - Recommendation: broad structural reforms to improve predictability and rules-based environment; implement broad privatization strategy.
    - Outcome: Some improvements in dispute resolution and tax administration. Little progress regarding SMEs; governance; infrastructure bottlenecks. Privatization slowed with focus shifted towards attracting private capital infusions to state-owned enterprises (SOEs).

### Recent Developments and Macroeconomic Indicators
- Growth:
  - Growth began slowing around mid-2012 and fell to 3.4 percent for the year (2012), from about 4½ percent in 2010-11.
  - Weakened further in Q1 2013 to 1.6 percent (y-o-y).
  - Short-term indicators mixed but suggest some recovery in recent months and a stronger growth outlook for the remainder of the year.
- Inflation:
  - Inflation rose from 3.6 percent in May 2012 to 7.4 percent y-o-y in May 2013, mostly due to food price shocks and regulated tariff hikes.
  - Inflation declined to 6.9 percent (y-o-y) in June 2013.
  - Staff’s measure of core inflation has remained slightly below headline inflation since Q4 2012.
- External sector and exchange rate:
  - Mid-2013 ruble basket rate depreciated by 6 percent, the highest among emerging European countries, prompting modest CBR interventions; the ruble subsequently rebounded modestly.
  - The Finance Ministry will begin purchasing foreign exchange on an ongoing basis for deposit into government oil savings funds managed by the CBR.
  - The CBR utilizes an exchange rate band mechanism.
- Current account and capital flows:
  - Current account surplus declined to $75 billion in 2012 (3.7 percent of GDP), from $97 billion in 2011 (5.1 percent of GDP).
  - First quarter 2013 current account surplus fell by $11 billion compared to 2012Q1.
  - Exports remain heavily weighted towards energy: energy accounted for two thirds of exports in 2012.
  - Net private capital outflows were $54 billion (2.7 percent of GDP) in 2012, driven by the nonbank private sector; outflows continued into early 2013 and increased further in May/June, led by depreciation expectations.
- Financial market developments:
  - Global financial market turbulence, including announced possible tapering of unconventional monetary policy in the U.S., put pressure on the exchange rate, the local bond market, and equities, and may have contributed to some acceleration of capital outflows.
  - Events in Cyprus so far have not had a significant impact on Russia.

### Policy Implications and Recommendations
- Expansionary monetary or fiscal policies are not advised given the estimated output gap at or near zero:
  - Expansionary policies would at best provide a modest and unsustainable increase in growth.
  - Risks include intensification of inflationary pressures and higher exchange rate volatility, which could further weaken the investment climate.
- Achieving higher sustainable growth requires adopting a new growth model focused on supply-side improvements and implementation of structural reforms:
  - Strengthen institutions and overcome supply-side constraints (many elements align with past Fund advice).
  - Prioritize implementation of reforms to improve the business environment, increase private investment and competition, and pursue measures that reduce the cost of doing business.
  - Continue efforts to increase the financial sector’s contribution to growth, improve public sector efficiency and investment, and implement PPP and privatization plans where feasible.
- Monitor spillover implications for CIS and Baltic countries due to close linkages via trade and remittances.

### Spillovers (Box 4)
- CIS linkages to Russia are strong, mainly through trade and remittances.
- The 2008/09 contraction in Russia severely affected the region via drops in Russia’s imports from and remittances to the region, and ruble depreciation triggered devaluations in most CIS countries.
- Imports and remittances have fully recovered from the crisis amid Russia’s robust growth in 2010–12; Russia’s imports from CIS countries have surpassed the pre-crisis peak.
- Remittances are particularly important for Moldova, Kyrgyz Republic, and Tajikistan, where they represent 15-40 percent of GDP.
- The recent slowdown in Russia has adversely affected the region; completion of the labor-intensive Sochi project at the beginning of 2014 may temporarily reduce remittances. A prolonged slowdown in Russia would have larger adverse spillovers.

*Source: International Monetary Fund (IMF) staff report excerpt.*

### Box 4. Spillovers (and the Cyprus Crisis) (Concluded)

### Box 4. Spillovers (and the Cyprus Crisis) (Concluded)

### Spillovers and Cyprus implications
- Russia’s direct exposure to Cyprus bank restructuring is small relative to the size of the Russian economy; lost deposits of Russian entities are estimated at about 0.1 percent of Russian GDP.
- Private sector representatives indicated some financial flows have been diverted to other financial centers, but the crisis and Cypriot capital controls have not been a significant impediment.
- Cyprus is Russia’s largest partner for both inward and outward foreign direct investment, though much of this is round-tripping and covered by netting agreements.
- Cyprus remains an important financial center for settling various Russian market transactions (e.g., stock market trades).
- Cyprus has been attractive due to:
  - favorable tax treatment and a large number of double-taxation treaties with EU countries and other economies;
  - under the double taxation treaty with Russia, Russian businesses that set up and remit dividends to offshore companies in Cyprus pay a withholding tax of only 5 percent, rather than the Russian tax of 15 percent;
  - remittances of royalties and interest are tax free, compared to 20% tax rate within Russia;
  - better property rights protection by the Cypriot legal framework;
  - Russia’s shortcomings in the implementation of the anti-money laundering framework may also have contributed to Cyprus’ attractiveness.
- The specific nature and volume of transactions through Cyprus remain unclear; developments in Cyprus may leave some Russian financial activity exposed to possible disruptions in payments flows, or create further incentive for diversion to other financial centers.

### Russia–Cyprus FDI links (2011) — reported stocks (Billions of U.S. dollars)
- Total Investment: 456 (Inward), 362 (Outward)
- Cyprus: 129 (Inward), 122 (Outward)
- Netherlands: 60 (Inward), 57 (Outward)
- BVI: 56 (Inward), 46 (Outward)
- Bermuda: 33 (Inward), Switzerland: 13 (Outward)
- Bahamas, The: 27 (Inward), Luxembourg: 12 (Outward)
- Luxembourg: 20 (Inward), United Kingdom: 11 (Outward)
- Germany: 19 (Inward), United States: 10 (Outward)
- Sweden: 16 (Inward), St. Kitts and Nevis: 7 (Outward)
- France: 15 (Inward), Jersey: 7 (Outward)
- Ireland: 9 (Inward), Germany: 7 (Outward)
- FDI stock (Reported by Russia): Russia to Cyprus 122; Cyprus to Russia 129
- FDI stock (Reported by Cyprus): Russia to Cyprus 26; Cyprus to Russia 19

### Fiscal policy and public finances
- The general government balance was in surplus (0.4 percent of GDP) in 2012, but is turning negative in 2013 as oil prices have weakened.
- Non-oil fiscal stance is roughly neutral; non-oil revenue growth has shown weakness—hurt by slowing growth and tax exemptions related to Sochi Olympics—particularly in VAT and profit taxes.
- Reserve Fund balance rose from 3 percent of GDP in 2012 to 4.1 percent of GDP as of mid-2013—short of the government’s 7 percent of GDP medium-term target—following deposit of 2012 oil savings.
- The NWF stands at 4.0 percent of GDP.
- The Finance Ministry has ruled out major changes to the tax regime; a property tax is under consideration.
- Projected privatization receipts for 2013–15 have been scaled back.
- Average duration of government debt extended to 4.5 years, up from 3.5 years last year.
- New oil-price based fiscal rule approved December 2012 places strict limits on federal spending, but additional spending is supported via:
  - a one percent of GDP increase in loan guarantees in 2013;
  - up to R450 billion (0.7 percent of GDP) in lending from the NWF for planned PPP infrastructure investments;
  - Far East investment incentives involving tax exemptions over 2014-2027.
- Government budgets under pressure from mandated wage increases and preparations for the 2014 Sochi Olympics and the 2018 World Cup.

### External sector assessment and reserves
- Staff’s assessment: Russia’s external position in 2012 was broadly in line with the value consistent with medium-term fundamentals and desirable policy settings; authorities agreed.
- IMF’s composite reserve adequacy metric for Russia was 186 percent as of end-2012.
- Cyclically-adjusted current account surplus in 2012 (estimated at around 3¾ percent of GDP) was 0 to 2 percent of GDP weaker than the current account norm.
- Regression analysis points to a modest real exchange rate undervaluation of 0–10 percent; alternative indicators suggest the ruble was about 13 percent overvalued.
- With oil prices projected to decline gradually, the oil price-based fiscal rule envisages a medium-term fiscal adjustment, which will be insufficient to improve the current account balance under the baseline scenario.
- Envisaged increase in exchange rate flexibility (supported by deeper fiscal adjustment) should help secure appropriate external balances.

### Monetary policy, inflation, and inflation targeting
- The CBR is targeting an end-2013 inflation rate between 5 and 6 percent.
- The CBR’s target range for 2014–15 is 4 to 5 percent.
- The CBR is considering a move to a point target of 4.5 percent with a symmetric tolerance band of +/- 1.5 percentage points beginning 2014–15.
- Preparations continue for adopting full-fledged inflation targeting (IT) by end-2014.
- Main policy rate has been on hold since September 2012.
- CBR lowered some secondary rates on longer-term facilities; money market rates edged up in 2013:Q2.
- In July, CBR launched a new 12-month floating rate refinancing facility secured by nonmarketable assets and guarantees, with a minimum interest rate of 25 bps above the standard repo facility.
- CBR now has about a dozen facilities for liquidity provision and absorption, with maturities from overnight to one year.
- Box 6: Progress and next steps toward IT include narrowing the interest rate corridor, shifting to more active open market operations, increasing exchange rate flexibility, improving policy transparency, creating a separate forecasting department, publishing inflation expectation surveys and CBR forecasts, and consolidating monetary operations instruments and rates.

### Banking sector, credit growth, and regulation
- Real credit growth decelerated to 11.3 percent (y-o-y) in the first quarter of 2013, down from 15 percent per annum average growth during 2011–12.
- Retail lending expanded by around 40 percent and uncollateralized retail lending grew by about 55 percent y-o-y in 2012.
- Reported average capital adequacy ratio for the banking system declined from 18.1 percent at end-2010 to 13.4 percent in February 2013; CBR estimates two thirds of this decline was due to expansion of bank lending and one third due to adoption of more conservative prudential regulations.
- NPL ratio has been declining due to rapid credit growth, with NPLs growing in nominal terms; indications of asset quality deterioration in 2013H1 suggest NPLs may increase quickly once credit growth slows.
- CBR introduced higher provisioning requirements for uncollateralized retail loans effective January 2013 and increased risk weights for consumer loans effective July 2013.
- Russia’s credit-to-GDP ratio of 52 percent is below the average of peer countries.
- Bank competition hindered by high concentration at the top and excessive fragmentation at the bottom; state-owned banks account for more than half of total loans and deposits.
- Smaller private banks (more than 700) face limited interbank access, weak profitability, high concentration risks, and supervisory challenges.
- Authorities have approved key amendments to the Banking Law to strengthen supervision; plan to merge supervisory functions of the FSFM into the CBR to create a mega-supervisor.
- CBR plans to implement Basel III capital frameworks within the next six months and the internal ratings-based approach (IRB) no earlier than 2015.

### Outlook and risks
- Staff baseline projections:
  - Real GDP growth to accelerate in 2H13 and reach 2½ percent in 2013.
  - Growth to pick up to 3¼ percent in 2014 under improved global environment and no downside risks (government forecast 3.7 percent).
  - Inflation projected to come down to about 6 percent (y-o-y) by end-2013.
  - Inflation expected to be around 5.5 percent in 2014 without further policy adjustment (government expects 5.3 percent).
  - Current account surplus projected to continue declining in 2014 amid slightly weaker energy prices.
  - Capital outflows expected to continue, albeit at a gradually slower pace.
- Risks are tilted to the downside, including:
  - Sharp decline in oil and natural gas prices (staff’s adverse scenario: sharp and permanent decline—e.g., due to a shale gas/oil revolution—would cause significant drop in growth, pressure on external and fiscal accounts, quick depletion of Reserve Fund, and slow growth recovery).
  - Acceleration of capital outflows and intensified international banking problems.
  - Domestic risks: deteriorating investment climate from political uncertainty and social protests, slow structural reforms, and political pressures for near-term policy stimulus that could threaten macroeconomic anchors.
  - Materialization of downside risks could have negative spillovers throughout the region, mainly through remittances and trade.

### Shock resilience and debt
- Russia is better equipped to handle adverse shocks than previously due to:
  - More flexible exchange rate to absorb external shocks;
  - Improved crisis management capacity to provide liquidity to banks;
  - Higher international reserves and reduced balance sheet mismatches enabling more flexible policy responses;
  - New oil price-based fiscal rule guiding short-term fiscal responses.
- Reserve Fund below its target level raises risk of procyclical fiscal adjustments in the event of large and lasting oil price declines.
- Public and gross external debt levels in 2012 were about 13 and 29 percent of GDP, respectively; debt sustainability is not an immediate concern.

### Medium-term potential and reform scenario
- Baseline potential growth is modest at 3½ percent absent further structural reforms; inflation will remain elevated at 5½ percent, and the external current account surplus would gradually decline as oil prices moderate and robust import growth continues.
- Reform scenario: Russia could achieve medium-term growth of about 5 percent if supported by:
  - stronger and more growth-friendly fiscal adjustment (and higher oil savings);
  - monetary policy fully focused on meeting inflation targets;
  - a more competitive financial system;
  - energy sector reform;
  - more progress with other structural reforms.
- Under the reform scenario, improved financial intermediation and labor market flexibility would boost productivity; a more favorable business climate and stable macroeconomic environment would raise investment and potential growth.

*Source: IMF staff analysis as presented in the content unit.*

### 23. The authorities broadly agreed with the risk assessments, but viewed medium-term

### 23. The authorities broadly agreed with the risk assessments, but viewed medium-term

### Authorities’ overarching view and risks
- Authorities broadly agreed with staff risk assessments but were more optimistic on medium-term growth.
- External risks identified: exports (particularly energy) and global food prices (inflation).
- Concerns about WTO accession impacts on autos, agriculture, aerospace, medical equipment, and light industry, while seeing broader benefits from WTO entry.
- Authorities noted Russia’s level of integration to global markets remained lower than many peers’, muting external risks.
- Domestic weakness highlighted: inadequate credit and investment.
- Ministry of Economic Development projects a medium-term growth rate of about 4½ percent and inflation of around 5 percent.

### A. Fiscal Policy: Measured Consolidation, Increase Savings
Findings and projections
- Under unchanged policies, staff estimates the Reserve Fund will decline to about 2.7 percent of GDP by 2018.
- Authorities estimate the Reserve Fund will reach about 6¼ percent of GDP by 2018 (difference largely due to more optimistic oil price assumptions).
- Staff recommendation: gradually tighten fiscal policy by an additional 0.4 percent of GDP per year, beginning 2014.
- Staff outcome: this would rebuild the Reserve Fund to around 7 percent of GDP by 2018—the level that would allow the authorities to maintain spending consistent with the fiscal rule for two years without resorting to additional market borrowing in the event of a sustained drop in oil prices to US$60/barrel.
- Without further adjustment, overall general government deficit will gradually widen and the Reserve Fund and NWF will gradually erode as a percent of GDP.
- Staff also recommended directing exhaustible oil income to begin rebuilding the NWF and strengthening the fiscal rule (including a lower benchmark oil price and possibly reduced net borrowing).

Policy recommendations and measures
- Resist pressures for higher government spending in 2013; maintain a cyclically neutral fiscal stance.
- Offset additional spending implied by lending NWF funds for PPP infrastructure projects and planned loan guarantees through cuts in lower priority spending or scale back such commitments.
- Avoid any new loan guarantees to be paid out of future budgets; match any new spending mandates imposed on regions with adequate funding.
- Strengthen fiscal rule and contain pressures to circumvent expenditure limits.
- Use some NWF resources for market-based PPP investment projects only with adequate controls: (1) strong assessment procedures for likelihood of positive investment returns; (2) clear investment guidelines; and (3) an independent investment committee.
- Structural fiscal reforms to enhance oil savings and productive spending, focusing on expenditure reductions and spending efficiency.

Possible Fiscal Adjustment Measures (Percent of GDP)
- Short-term up to 3.7:
  - Loan guarantees 1/ up to 1.0
  - Cut tax expenditures 2/ 2.0
  - Increase excise taxes 0.7
- Medium-to-long-term up to 6.0:
  - Reduce wage bill 0.9
  - Better targeted social transfers 1.0
  - Increase retirement age 2.0 - 3.0
  - Reduce early pensions 0.7
  - Improve capital budgeting 0.4
- Total up to 9.7

Box 7 — Pension Reform: findings and authorities’ stance
- Without changes, annual public pension spending is expected to rise by about 3 percent of GDP by 2030.
- Staff advised raising the retirement age and lengthening the minimum number of years for eligibility.
- Authorities rejected increasing the retirement age in favor of an incentive-based system and a shift to a points-based pension system (details to be announced later).
- Current contribution is 30 percent of wages up to an income threshold of R0.6 million, above which the tax rate drops to 10 percent; authorities may gradually increase the income threshold but decided against changes in social security tax rates for at least the next 2-3 years.
- Beginning 2014, the default contribution rate to the fully-funded (Pillar II) pension plan will fall from 6 to 2 percentage points of wages, which could result in increased contributions to the Pillar I scheme of up to 0.5 percent of GDP.
- Staff noted these changes could increase overall spending, weaken long-term sustainability of the pension system, and reduce support for capital market development from Pillar II-related pension funds.

Authorities’ fiscal views
- Government did not see scope or need for additional fiscal adjustment beyond their plans.
- Authorities support additional infrastructure spending for medium-term growth and view PPPs backed by NWF lending as important and consistent with NWF mandate.
- Authorities agreed on importance of rebuilding oil funds but consider faster fiscal adjustment politically not possible now; their projections show Reserve Fund close to 7 percent by 2018.
- Authorities view pension reform as critical but will focus on incentives to postpone retirement rather than raising retirement age.
- Plan to enhance spending efficiency and introduce a property tax over the next five years, shift to program budgeting next year, and prepare a 2030 fiscal strategy.

### B. Monetary Policy: Maintain Stance, Anchor Inflation
Findings and projections
- Staff view current monetary policy stance as consistent with bringing inflation down to the CBR’s 5 to 6 percent target range this year, if recommended fiscal adjustment proceeds.
- Sustaining disinflation to the 2014 target range of 4 to 5 percent will necessitate further policy actions—including tightening of monetary policy in the absence of the recommended fiscal adjustment.
- Staff cautioned against rate cuts despite growth slowdown because inflation has continued to surprise on the high side throughout 2013H1 and the output gap is likely close to zero.
- Staff recommended completing the transition to a fully flexible exchange rate.

Policy recommendations and operational measures
- Swift adoption of formal IT (inflation targeting) and supporting policies to anchor inflation expectations and lower long-term lending rates.
- Buttress IT framework with regular inflation expectation surveys, publication of inflation forecasts, improvements in decision-making and organizational arrangements, and consolidation of CBR’s multiple liquidity instruments.
- Strengthen transmission mechanism by: (i) deepening the interbank market and reducing its volatility; and (ii) enhancing CBR’s capacity to forecast system liquidity and analyze forecasting errors.
- Urged closer coordination between monetary and fiscal authorities to improve liquidity forecasts.
- CBR’s new 12-month refinancing facility may help liquidity management and interbank market functioning but should not be used for quantitative easing. Ensure:
  - Eligible collateral is well-specified and appropriately discounted for risk;
  - Recipient banks have adequate risk and liquidity management practices; and
  - No underlying solvency concerns with banks utilizing the facility.
- Do not change inflation targets for 2014-15; a point target with wider bands is justified. Staff cautioned against weakening announced targets.
- Inflation targets for 2016 to 2018 should not exceed 4.5 percent (the center of the target band already announced for 2014 and 2015). Medium-term guidelines should clarify whether 2016-2018 target is a step toward a lower long-run target or the long-run target itself.

Authorities’ monetary views
- Commit to formally adopt IT by end-2014.
- CBR maintained observed inflation pace was mainly explained by food prices and regulated tariffs and expects current stance, lower planned utility price hikes, and absence of adverse food price shocks to bring inflation within targeted range by September 2013 and into the 2014 target range thereafter.
- Authorities expect this trajectory to provide scope for lower policy rates, but policy decisions will consider capacity utilization, unemployment, and credit growth.
- Some officials concerned a wider tolerance band could adversely affect inflation expectations; others argued a wider band is appropriate for Russia given volatile headline inflation.
- CBR stated the main goal of the new one-year facility is to improve liquidity management, interbank market functioning, and monetary transmission.

### C. Financial Sector: Contain Risks, Strengthen Intermediation
Findings and vulnerabilities
- Rapid retail credit growth has reduced capital and liquidity cushions; retail loan portfolio quality is worsening; the debt burden is increasing and high by international comparison.
- CBR’s recent tightening of capitalization and provisioning requirements is welcome.
- Household debt indicators noted (figure references): rising ratio of household debt to annual income.

Regulatory and supervisory recommendations
- Lending growth should be closely monitored, with further action taken as needed.
- Adopt remaining FSAP recommendations swiftly, including:
  - Formally establishing the leading role of the CBR in macroprudential policy;
  - Introducing a unified administration regime for all banks;
  - Restricting open bank assistance by the Deposit Insurance Agency (DIA) to systemic situations.
- Maintain and enhance CBR independence, empower it to issue regulations on nonbanks, and enact legislation to facilitate collection and dissemination of borrower information by credit bureaus.
- Consider increasing risk weights and provisions for unsecured lending and formally introduce ceilings on debt-service-to-income ratios for household lending and loan-to-value ratios for housing and car loans to limit household debt burdens.

Capital standards and Basel III
- Basel III should be adopted without delay.
- IRB (internal ratings-based) approach should be implemented only when banks and supervisors are ready; staff supported plans to introduce new capital requirements exceeding Basel III minimums (example cited: 5.5 percent core capital vs. 4.5 percent under Basel III) given GDP volatility, weak creditor rights, and difficulties in identifying nonperforming assets and provisioning practices.
- Staff recommended:
  - Implementing the IRB framework with at least a three year implementation period, as advised under the Basel framework, and introducing floors under the new capital requirement; and
  - Raising minimum nominal capital requirements.

*Source: IMF staff and authorities’ discussions as presented in the provided content.*

### 36. State ownership in banks should be gradually reduced, and banking sector

### _cr13310 - 36. State ownership in banks should be gradually reduced, and banking sector

### Recommendations for the banking sector
- Gradually divest from dominant banks. The CBR’s combined role as supervisor, regulator, and main shareholder of Russia’s largest bank (Sberbank) generates implicit costs in terms of system efficiency and financial sector development. Further divestiture of Sberbank shares is consistent with the government’s Strategy for Development of the Banking Sector until 2015.
- Strengthen corporate governance in government-owned financial institutions to reduce losses (notably losses announced earlier this year by the state-owned development corporation where over 75 percent of its loans for Sochi Olympics-related projects (about 0.3 percent of GDP) are unlikely to be repaid). Specific steps could include increasing the number of independent directors.
- Promote bank consolidation to reduce supervisory burden and help diversify and strengthen bank balance sheets; larger banks would be able to better diversify geographically and across sectors. Staff supports authorities’ plans to raise minimum capital requirements and tighten related-lending and large-exposure limits.
- Strengthen bank competition to enhance efficiency, lower lending rates, and improve investment allocation and funding. Competition could be fostered by reducing fragmentation through consolidation and reduced public bank ownership; greater pricing transparency and consumer protection; and further strengthening credit bureaus and collateral registries to reduce information asymmetries.
- Strengthen transparency. Implementation of anti-money laundering (AML) and fit and proper measures, along with strengthened financial sector supervision, should help prevent “pocket banks” from serving as shadow treasury departments to affiliated corporate clients and as vehicles for capital outflows, including via transfer pricing manipulation.

### Authorities’ views on the banking sector
- The authorities saw no tangible systemic financial sector risks at present, but broadly shared staff’s concerns about:
  - Diminished capital adequacy ratios, including in connection with Basel III implementation.
  - Rapid consumer lending growth.
- They pointed to systemic liquidity risks, with demand for CBR refinancing increasing substantially over the past two years. The CBR indicated that its own stress tests suggest the banking sector is stable and resilient to a variety of potential shocks—although capitalization in banks representing one-third of banking system assets would drop below regulatory requirements.
- The CBR’s macro stress-testing model suggests that 308 credit institutions (accounting for 1/3 of banking system assets) may have a capital deficit in a ‘severe’ scenario, amounting to rubles 522bn. The average capital adequacy ratio of the banking sector would fall to 10.6 percent. The ‘severe’ scenario envisages a real GDP contraction of 5 percent and a fall in oil prices to US60/barrel. This compares to an 8 percent of GDP contraction and US$62/barrel oil price in 2009.
- Authorities believed capital needs for Basel III were not excessive and expected banks to mobilize the bulk of new capital through retained profits. They assumed only a limited number of banks would start using the IRB approach to assess credit risk (8 ‘pilot’ banks) and agreed that floors under capital should be introduced as established by the Basel framework.
- While acknowledging potential conflicts of interest from CBR ownership of Sberbank, authorities noted benefits: Sberbank’s social functions, positive externalities from high ratings for system stability, assertion that Sberbank is well managed with good corporate governance, and concerns that near-term divestment or break-up could lead to rating downgrades and higher lending rates. They agreed that addressing causes of fragmentation—improving corporate governance, access to information, creditor rights, and competition—would strengthen the financial sector’s efficiency and contribution to growth.

### Structural policies and broader reform recommendations
- Structural reforms are key to unleashing Russia’s growth potential; weak business climate remains a key obstacle to investment, diversification, and growth.
- Priorities and specific measures:
  - Address inadequate infrastructure (transportation and electricity), financing constraints, and shortage of skilled labor.
  - Further deregulation to address customs inefficiencies and other red tape.
  - More decisive implementation of corporate governance reforms and government privatization plans for SOEs and state-owned banks to reduce the government footprint in the economy.
  - Update the corporate governance code, including financial disclosures and reporting on ultimate owners, and strengthen protection of intellectual property rights.
- Global integration opportunities:
  - WTO entry, the G20 presidency, and steps towards OECD accession present opportunities to improve efficiency; reversal of protectionist measures and broader deregulation will promote competition and productivity.
  - Measures to improve cross-regional labor mobility (better urban infrastructure and housing supply) and better targeted social safety nets are recommended.
- Sector-specific recommendations:
  - Hydrocarbon sector: move from revenue-based to profit-based tax instruments to provide incentives to tap higher-cost resources and extend economic life of nearly depleted fields; strengthen property right guarantees and access to midstream distribution chains.
  - Facilitate diversification and reduce government footprint via gradual divestment from the banking sector and stronger implementation of privatization; consider costs and benefits of regional development initiatives and adopt measures such as pension reform to enhance labor force participation.

### Staff appraisal and macro policy guidance
- Economic assessment:
  - Growth has slowed, but the economy appears to be operating at or near full capacity and inflation remains high; monetary and fiscal stimuli would likely provide only a modest and unsustainable boost to growth.
  - Structural reforms are necessary to increase potential output growth.
- Fiscal policy:
  - The fiscal stance in 2013 is appropriate but a more ambitious medium-term fiscal adjustment is needed to generate sufficient saving of oil revenues.
  - Authorities should tighten the fiscal rule to rebuild fiscal buffers and save more exhaustible oil income; adjustment should focus on expenditure reductions and improving mix and efficiency of spending.
  - Pension reform (increasing the retirement age) and improving efficiency of publicly-owned enterprises are key to fiscal consolidation.
- Monetary policy:
  - 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 outlook, the current stance is appropriate but sustainably reducing inflation to the lower 2014 target range calls for a tightening bias.
  - Establishing operational credibility of the monetary policy framework in the move towards formal IT is critical. Increased exchange rate flexibility has served Russia well; further reductions in foreign exchange market interventions should facilitate the planned transition to a floating exchange rate regime by 2015.
- Financial stability and supervision:
  - Recent steps to improve the supervisory framework are welcome; financial stability risks are moderate but rising.
  - Authorities should consider introducing additional prudential measures if current measures fail to moderate rapid retail credit growth; any push towards earlier IRB adoption should be resisted.
  - Improving corporate governance, access to information, creditor rights, competition, consolidation of the fragmented banking system, and tightened large exposure and related party lending limits will enhance stability.
  - Further divestiture of state-owned banks should be pursued to enhance competitiveness in the financial sector.
- Long-run reform imperative:
  - Ambitious economic policy reforms are necessary to realize medium-term potential and reduce vulnerabilities. Raising potential growth requires supply-side structural measures, strengthened corporate governance, continued deregulation, swift and transparent privatization, resisting protectionist pressures post-WTO accession, energy tax regime changes, strengthened property rights and distribution access, and improved efficiency of publicly-owned companies.

*Source: IMF staff report excerpt (state ownership in banks and structural policy recommendations).*

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

### _cr13310 - 49. It is proposed that the next Article IV consultation be held on the standard 12-month

### Growth, investment, and oil dependence
- Russia's per capita GDP was $1,775 in 2000.
- "Easy Growth is Over" (2000–18): oil prices have supported growth, but are expected to decline.
- Real GDP (annual percent change): -7.8 (2009); 4.5 (2010); 4.3 (2011); 3.4 (2012); 2.5 (2013); 3.3 (2014).
- Real domestic demand (annual percent change): -14.2 (2009); 8.5 (2010); 9.1 (2011); 5.3 (2012); 4.3 (2013); 4.4 (2014).
- Investment (annual percent change): -41.0 (2009); 28.5 (2010); 22.6 (2011); 6.6 (2012); 3.5 (2013); 4.2 (2014).
- Weak and volatile investment has contributed to the growth slowdown.

### Increasing state presence and productivity
- Government ownership in crude oil production has risen (1995–2015); Rosneft merger and Yukos auction highlighted.
- Banking sector assets: State-controlled 35 percent (December 2000) → State-controlled 58 percent (January 2012).
- Labor force and productivity: the state remains a significant employer while public sector productivity is low; labor productivity index (2005=100) shows public sector below private sector (2005–2012).

### Production indicators, labor market, and inflation dynamics
- GDP growth and output gap (2007Q1–2013Q1): growth has slowed, economy operating at potential.
- Contributions to GDP growth (q/q s.a.a.r): private consumption, investment, net exports, others — slowdown broad-based across sectors.
- Purchasing Managers Index (PMI): PMI composite output and new orders remained >50 (no market expectation of contraction).
- Real wages and unemployment: real wages growing at a slower pace; unemployment rate remains close to historical lows.
- Inflation drivers: Inflation increased from record lows in early 2012, driven by high food and administered prices.
  - Consumer prices (period average): 11.7 (2009); 6.9 (2010); 8.4 (2011); 5.1 (2012); 6.9 (2013); 5.8 (2014).
  - CPI end of period: 8.8 (2009); 8.8 (2010); 6.1 (2011); 6.6 (2012); 6.1 (2013); 5.5 (2014).

### External sector, reserves, and export concentration
- Exchange rate: the ruble/US$ has become more flexible; REER (2005=100) continues to appreciate in the sample.
- Export concentration (Herfindahl index) has risen and is high relative to peers.
- Exports and imports (billions of U.S. dollars, f.o.b): Exports 297.2 (2009); 392.7 (2010); 515.4 (2011); 529.1 (2012); 521.6 (2013); 520.0 (2014). Imports -183.9 (2009); -245.7 (2010); -318.6 (2011); -335.8 (2012); -356.4 (2013); -376.8 (2014).
- Current account (billions of U.S. dollars): 50.4 (2009); 67.5 (2010); 97.3 (2011); 74.8 (2012); 45.7 (2013); 34.0 (2014).
- Current account (percent of GDP): 4.1 (2009); 4.4 (2010); 5.1 (2011); 3.7 (2012); 2.1 (2013); 1.5 (2014).
- Gross international reserves (billions of U.S. dollars): 439.5 (2009); 479.4 (2010); 498.6 (2011); 537.6 (2012); 537.7 (2013); 537.7 (2014). Months of imports: 21.3 (2009); 17.9 (2010); 14.6 (2011); 14.5 (2012); 13.7 (2013); 13.0 (2014).

### Fiscal policy, oil revenue, and oil funds
- Oil revenue (Federal, percent of GDP) and Urals oil price (U.S. dollars per barrel) projected to decline.
  - World oil price (U.S. dollars per barrel, WEO/IMF data): 61.8 (2009); 79.0 (2010); 104.0 (2011); 112.7 (2012); 106.0 (2013); 99.9 (2014).
  - Urals crude oil spot price (U.S. dollars per barrel): 61.3 (2009); 78.3 (2010); 109.3 (2011); 110.3 (2012); 103.5 (2013); 97.4 (2014).
- General government revenue and expenditure (percent of GDP):
  - Revenue: 35.0 (2009); 34.6 (2010); 37.4 (2011); 36.9 (2012); 36.8 (2013); 36.1 (2014).
  - Expenditures: 41.4 (2009); 38.0 (2010); 35.8 (2011); 36.5 (2012); 37.5 (2013); 36.8 (2014).
- General government net lending/borrowing (overall balance, percent of GDP): -6.3 (2009); -3.4 (2010); 1.5 (2011); 0.4 (2012); -0.6 (2013); -0.7 (2014).
- Nonoil balance (general government, percent of GDP): -15.2 (2009); -13.0 (2010); -10.0 (2011); -10.9 (2012); -10.8 (2013); -9.7 (2014).
- Oil funds (percent of GDP): Reserve Fund and Oil Stabilization Fund levels and projections show insufficient savings generation under current pace of non-oil deficit reduction; Reserve Fund target line indicated in projections.
- The report notes: "The new fiscal rule reduces spending volatility and the overall deficit."

### Monetary policy, FX interventions, and inflation targeting
- CBR actions (2010–13): reduced FX interventions; allowed greater ruble volatility.
- Net FX purchases (billions of U.S. dollars) and net FX purchases 3-month moving average show declining interventions.
- 1-day interbank rate (MIACR) and CBR standing facilities: the CBR has kept its main policy rate on hold but allowed interbank rate to edge up; tightening liquidity in interbank market observed.
- Monetary aggregates:
  - Ruble broad money (annual percent change): 17.7 (2009); 31.1 (2010); 22.3 (2011); 21.2 (2012); 19.1 (2013); 14.9 (2014).
  - Credit to the economy (annual percent change): 2.6 (2009); 12.9 (2010); 28.1 (2011); 20.7 (2012); 14.6 (2013); 12.9 (2014).
- Monetary policy challenge: staff projects inflation remaining above the mid-point of the authorities' target range (4 to 5 percent) under baseline; Reform scenario aims to bring inflation down to 3 percent over the medium term with a fully flexible exchange rate.

### Banking sector, credit, and liquidity
- Deposit funding gap (billions of Russian rubles) since 2011H2: deposit growth has not kept pace with lending growth; gap filled by equity funding and CBR refinancing.
- Capital adequacy ratio of top 30 banks (percent, average) showed declining capital buffers.
- Loan-to-deposit ratios rising; credit growth dampened going forward.
- Regulatory Tier 1 capital to risk-weighted assets and regulatory capital to risk-weighted assets: capital adequacy fairly low by international comparisons.
- Reliance on official sector funding is high (liabilities to CBR, government deposits, FX intervention share in liquidity injections).
- Private sector credit (annual percent growth): corporate and retail patterns — corporate credit growth moderated, retail lending growth remained high, especially in unsecured consumer segment.
- Consumer loan-deposit spreads: consumer loan spreads remain elevated and high compared with peers.
- Household debt to GDP in 2012 remains comparatively low (panel of country comparisons), but household debt service to income ratios are high reflecting short maturities and high interest costs.

### Nonperforming loans and retail credit quality
- Nonperforming loans (billions of Russian rubles, nominal growth): nonperforming assets have been growing in nominal terms.
- Non-performing loans net of provisions to capital and NPLs to total gross loans trends shown (2008–13).
- Share of overdue loans in retail lending (loans overdue by more than 90 days) indicates deterioration in uncollateralized retail loan portfolio.
- FICO Credit Health Index (percent delinquent >60 days) shows deterioration trends in consumer credit health.

### Governance and business climate indicators
- World Bank Doing Business indicators (number of countries below Russia) and World Bank Governance Indicators (Voice and Accountability; Political Stability; Government Effectiveness; Regulatory Quality; Rule of Law; Control of Corruption) show Russia positioned below BRICS peers on several governance measures and with notable regulatory obstacles to doing business (corruption, tax administration, access to land, customs and trade regulations, business licensing and permits, labor regulations, courts).

### Scenarios, shocks, and policy options
- Three scenarios analyzed with explicit assumptions:
  - Baseline scenario: continuation of current policies; fiscal policy implements the 2013-15 medium-term budget minimum expenditure commitments and otherwise follows the new oil price-based fiscal rule (without the tightening recommended by staff); monetary policy allows greater exchange-rate flexibility but inflation remains above mid-point of target (4 to 5 percent); no major additional banking-sector policy changes; policy frameworks largely unreformed.
  - Adverse scenario: permanent external shock — oil prices decline to $60 per barrel in 2014 and stay there in nominal terms; in 2014–15 fiscal policy implements expenditure consistent with the oil price–based fiscal rule subject to minimum expenditure commitments; monetary policy becomes more accommodative in 2014–15 and neutral in outer years; in 2014 the ruble depreciates significantly, but reserves are used to prevent overshooting; no structural reforms or strengthening of policy frameworks.
  - Reform scenario: full implementation of staff-recommended reforms; monetary policy focuses on bringing inflation down to 3 percent over the medium term with a fully flexible exchange rate; fiscal policy implements a more ambitious and credible consolidation with the non-oil deficit of the federal government declining to 4.9 percent of GDP by 2018; supervisory framework strengthened along 2011 FSAP recommendations; fundamental structural reforms to improve business climate and competitiveness; policy frameworks strengthened per IMF staff recommendations.
- Scenario outputs (selected indicators under Baseline, Adverse, Reform; 2010–18):
  - Federal government overall balance (percent of GDP), Real GDP growth (percent), Net private capital flows (billions of US dollars), CPI inflation (end of period), Current account balance (percent of GDP), Oil Reserve Fund (percent of GDP) are presented for each scenario (charts and series in the source).

### Balance of payments and external vulnerability
- Balance of Payments (selected flows, billions of U.S. dollars):
  - Current account: 50.4 (2009); 67.5 (2010); 97.3 (2011); 74.8 (2012); 45.7 (2013); 34.0 (2014).
  - Trade balance: 113.2 (2009); 147.0 (2010); 196.9 (2011); 193.3 (2012); 165.2 (2013); 143.2 (2014).
  - Net private capital flows: -58.1 (2009); -26.6 (2010); -80.5 (2011); -54.2 (2012); -46.7 (2013); -35.0 (2014).
  - Overall balance and financing: overall balance 4.0 (2009); 36.3 (2010); 12.2 (2011); 36.3 (2012); 0.0 (2013); 0.0 (2014).
- Indicators of external vulnerability:
  - Total external debt (billions of U.S. dollars): 480.5 (2008); 467.2 (2009); 488.9 (2010); 545.2 (2011); 580.7 (2012).
  - Total external debt (percent of GDP): 38.2 (2008); 32.2 (2009); 28.7 (2010); 28.6 (2011); 27.9 (2012).
  - Total external debt to exports of goods and services (percent): 91.8 (2008); 136.2 (2009); 110.7 (2010); 95.1 (2011); 98.1 (2012).
  - Official reserves (months of GNFS imports): 14.0 (2008); 21.3 (2009); 17.9 (2010); 14.6 (2011); 14.5 (2012).
  - Gross reserves (end of period, billions USD) and months of imports shown in medium-term tables.

### Public debt, fiscal sustainability, and stress tests
- Public sector debt (percent of GDP, baseline): 11.0 (2009); 11.0 (2010); 11.7 (2011); 12.5 (2012); 13.8 (2013); 14.7 (2014); projected 15.5 (2015); 15.4 (2016); 15.2 (2017); 15.2 (2018).
- Public sector debt-to-revenue ratio: 26.2 (2009); 29.3 (2010); 31.2 (2011); 35.4 (2012); 37.4 (2013); 40.8 (2014); 43.5 (2015); 44.4 (2016); 44.9 (2017); 45.5 (2018).
- Debt-stabilizing primary balance and identified debt-creating flows are presented; gross financing need (percent of GDP) and in billions of U.S. dollars provided for 2009–18.
- Stress tests and alternative scenarios (historical averages; no policy change) presented with resulting debt trajectories.

### Key policy points and implications (drawn from analysis and scenario comparisons)
- Reduce reliance on oil revenue and increase non-oil savings: oil prices and revenues are expected to decline; the pace of non-oil deficit reduction is insufficient to generate adequate savings under current policy.
- Strengthen fiscal consolidation and fiscal rule: staff recommends tighter implementation than assumed under the baseline fiscal rule to limit spending volatility and preserve reserves.
- Pursue structural reforms to lift growth: Reform scenario projects higher growth, lower inflation, improved external balance outcomes contingent on full implementation of recommended reforms to improve business climate and competitiveness.
- Monetary policy: a focus on reducing inflation to 3 percent (Reform scenario) under a fully flexible exchange rate would support external adjustment and macro stability.
- Banking sector: strengthen supervisory framework (as recommended by the 2011 FSAP), bolster capital adequacy, reduce reliance on CBR refinancing, and address rising nonperforming loans, especially in unsecured retail lending.
- Exchange-rate flexibility and reserve management: allow greater flexibility to absorb shocks while using reserves to prevent disorderly overshooting as needed (policy trade-offs illustrated under the Adverse scenario).

*International Monetary Fund — Russian Federation: Selected figures, projections, scenarios, and policy analysis as presented in the IMF staff report content unit.*

### Annex I. Assessment of Russia’s New Fiscal Rule

### Annex I. Assessment of Russia’s New Fiscal Rule

### Summary
- Russia’s new fiscal rule sets a clear framework for setting expenditure levels, reducing volatility of spending tied to oil price movements, and the conditions under which oil revenues are saved or spent.
- Under current parameters, the rule does not generate sufficient savings into oil funds.
- Several other potential shortcomings exist that the authorities should address or guard against.

### Background
- The rule ex ante caps federal government expenditures at the ex ante projection of the sum of:
  - non-oil revenues,
  - oil and gas (“oil”) revenues calculated at a benchmark oil price, and
  - net financing of one percent of GDP.
- The benchmark price is a backward looking ten-year (initially five-year) average of Urals oil prices (US$/barrel). For 2013, the benchmark price reflects the five-year (2008-2012) backward looking average of Ural oil prices, equivalent to US$91/barrel.
- When current oil prices are above the benchmark price, the resulting oil savings are deposited in the Reserve Fund (macroeconomic stabilization fund). Once the Reserve Fund reaches seven percent of GDP:
  - 50 percent of any additional oil-related savings are allocated to the National Wealth Fund (NWF),
  - the other 50 percent are for infrastructure projects or other projects of national importance.
- When current oil prices are below the benchmark price, the Reserve Fund would be tapped to help maintain expenditures and finance the deficit.
- If actual oil prices remain below the benchmark price for the three previous years, the benchmark price is reset equal to the 3-year backward-looking average.
- The new rule replaced a suspended budgetary rule targeting a nonoil deficit of 4.7 percent of GDP and was intended to be easier to communicate and allow a more gradual transition to a stronger fiscal position.

### Assessment — Key Findings
- The new rule is positive in addressing oil price/revenue-driven volatility and provides a mechanism for saving and drawing down oil savings. Important shortcomings include:
  - Insufficient oil savings.
    - Under baseline projections, the Reserve Fund will remain below the authorities’ targeted level of 7 percent of GDP.
    - Intergenerational savings (NWF) are projected to gradually erode as a percent of GDP.
    - Under the rule, little possibility of higher intergenerational savings unless oil prices continue to rise at pace well in excess of nominal GDP.
    - Authorities project the Reserve Fund would be replenished by 2019 and the NWF would then gradually begin to rise, based on a significantly higher projected oil price path relative to staff projections.
  - Operation hindered by minimum expenditure commitments under the medium-term budget rule.
    - The new rule will not be fully binding until 2016 because the medium-term budget law sets minimum expenditure commitments on a rolling three-year basis (current budget covers 2013-15).
    - Expenditures in the first year under each three-year budget must be fully honored; expenditures in the second and third year cannot be lowered by more than 0.5 and 0.8 percent of GDP, respectively.
    - Under current parameters and staff estimates, federal government expenditures will remain above the level implied by the fiscal rule through 2015.
  - Diversion of the flow of annual oil savings.
    - Amount to be deposited or withdrawn from the Reserve Fund is prescribed ex ante in the annual Budget Law and can be higher or lower than intuitive oil savings.
    - Deposits can be financed by issuing more debt or reduced by utilizing oil savings to cover the net borrowing of one percent of GDP.
    - Savings can be diverted to cover shortfalls in privatization or non-oil revenue (example: government decided in April 2013 to cover expected privatization shortfalls by reducing amounts deposited into the Reserve Fund).
  - Limited response to non-oil shocks.
    - The rule’s basic structure is not designed to respond to non-oil shocks, though recent amendments permit diverting flow oil savings to cover non-oil revenue shortfalls (limited to the amount of oil savings generated in the same year; the “principal” of the Reserve Fund cannot be tapped).
  - Expenditure limits can be circumvented through on- or off-budget mechanisms, including:
    - Off-budget loan guarantees: Net government loan guarantees are projected to be increased by up to one percent of GDP this year, with additional increases planned for 2014-5. A portion are for non-revenue generating spending to be paid out of future budgets.
    - Pension changes: Diversion of contributions from Pillar II to Pillar I reduces required budget support for Pillar I now while increasing future PAYG liabilities.
  - Susceptibility to manipulation via macroeconomic assumptions:
    - Overly optimistic non-oil revenue projections, exchange rate assumptions, or projected GDP can inflate the expenditure envelope.
    - Exchange rate and nominal GDP are set by the Ministry of Economic Development.
    - In recent years, authorities’ projections do not appear to be systematically biased.
  - Risk of shifting unfunded spending obligations to regions; some large regions can access market financing and could finance higher deficits for some time.

### Recommendations
- Maintain the spirit of the rule and establish credibility through actions demonstrating the rule will be more binding and successful than the last one.
- Specific recommendations:
  - Tighten the rule to generate more savings.
    - Authorities should tighten the fiscal rule to reach a minimum of 7 percent of GDP in the Reserve Fund by 2018, and then begin rebuilding the NWF.
    - Staff views this Reserve Fund level as the minimum sufficient level to maintain expenditures consistent with the fiscal rule for two years, without resorting to additional borrowing, in the event of a sustained drop in oil prices to US$60/barrel.
    - This strategy would be consistent with past recommendations to target a non-oil deficit below 5 percent of GDP.
  - Protect savings.
    - Remove the option to divert oil savings to cover shortfalls in privatization or non-oil revenue.
  - Contain other spending pressures.
    - Scale back or spread out planned loan guarantees to be paid out of future budgets.
    - Avoid any new loan guarantees of this type (such spending should be brought on budget).
    - Ensure any new spending mandates imposed on regions are matched with adequate funding.
  - Sound forecasts.
    - Maintain independent (realistic) forecasts for key macroeconomic parameters, especially the exchange rate and nominal GDP, used in setting the budget.
  - Revisit commitments.
    - Remove minimum expenditure commitments in medium-term budgets (this could be accompanied by contingent spending).
  - NWF contributions.
    - Eliminate the 50/50 distribution rule in favor of a framework that considers infrastructure needs and likely net returns, Dutch Disease considerations, and availability of funding from budget expenditure reforms.

### Box A1 — How the Oil Savings are Invested and Managed
- Ownership and management:
  - The two oil savings funds are owned by the government and controlled by the Finance Ministry, which can designate the CBR as ‘operational manager’.
  - Deposits have been made in rubles, generally on an annual basis, by the Finance Ministry into CBR-managed funds, which are then held largely as foreign exchange deposits.
  - Finance Ministry announced plans to begin purchasing, later in 2013, foreign exchange in the market and then deposit these FX funds (rather than ruble funds) into the oil savings funds at the CBR.
  - All FX reserves are expected to remain under CBR ownership (interest on oil fund-related FX deposits linked to a basket of FX assets).
  - Funds’ management guidelines are published; monthly data on balances are published. Accumulation, expenditure, and management are reviewed quarterly by the Accounts Chamber and reported to parliament.
- Reserve Fund:
  - Held in FX-denominated deposits at the CBR.
  - FX deposits linked to (or can be directly invested in) low-yield highly rated short-term foreign exchange securities.
  - Currency allocation: U.S. dollars (45 percent), euro (45 percent), GB pounds (10 percent).
- National Wealth Fund (NWF):
  - Dedicated to support the pension system.
  - Maximum amount of NWF assets that can be invested in foreign currency is 100 percent.
  - FX deposits linked to (or can be directly invested in) relatively riskier, higher return instruments.
  - Currency composition: U.S. dollars (45 percent), euro (45 percent), GB pounds (10 percent).
  - Up to 40 percent of NWF assets can be invested in Russian rubles.
  - Currently, NWF holds about 25 percent of its assets (475bn in rubles, and 6.3 billion in U.S. dollars) in medium and long-term deposits at VEB.
    - VEB uses these funds for subordinated loans to Russian banks (R355bn), loans to SMEs (R30bn), loans to the Agency for Housing Mortgage Lending (R40bn) and other purposes.

### Table A1 — Selected Federal Budget, Oil Savings, and Oil Prices (2012–15) (Percent of GDP unless otherwise indicated)
- Federal Government Non-Oil Balance:
  - Authorities: -10.4 -9.7 -8.7 -8.5
  - Staff baseline: -10.3 -10 -8.9 -8.5
  - Staff reform scenario: -10.3 -10 -8.6 -7.9
- Reserve Fund:
  - Authorities: 3.0 4.0 4.1 4.1
  - Staff baseline: 3.0 4.1 4.3 4.2
  - Staff reform scenario: 3.0 4.1 4.6 5.2
- NWF:
  - Authorities: 4.3 4.2 3.9 3.6
  - Staff baseline: 4.3 4.0 3.7 3.5
  - Staff reform scenario: 4.3 4.0 3.7 3.5
- Oil Prices (U.S. dollars per barrel):
  - Authorities (Urals spot)2\: 110.5 105.0 101.0 100.0
  - Staff baseline (Urals spot): 110.3 103.5 97.4 93.8
  - World oil price 3: 112.7 106.0 99.9 96.3
- Oil Benchmark Price (U.S. Dollars per barrel)4:
  - Authorities (budget): --- 91.0 92.0 93.0
  - Staff baseline: --- 90.8 92.9 93.5

Notes from source:
- Projections as of June 2013.
- 2013-2015 budget Urals spot price assumptions are 97, 101, and 104 U.S. dollars per barrel, respectively.
- The spot Urals price and related averages are used in communications; for budget revenue and expenditure projections the authorities use the Urals average contract price (difference generally 3 to 5 U.S. dollars per barrel). Urals spot trades at a 1 to 2 U.S. dollars per barrel discount to world oil prices.

*Source: Annex I. Assessment of Russia’s New Fiscal Rule (IMF)._

### 4. Cyprus

### 4. Cyprus

### Assessment of spillovers
- Cyprus is the main source of FDI and a major offshore financial center for Russia.
- Spillovers from Cyprus have been small, with lost deposits a small fraction of Russia’s own banking system and economy.
- Cypriot capital controls could complicate financial flows involving Russian-controlled entities via Cyprus.

### Channels and risks
- Financial flows: Cypriot capital controls may impede transactions and movement of funds for Russian-controlled entities routed via Cyprus.
- Banking exposure: Lost deposits in Cyprus represent a small fraction of Russia’s banking system and economy, limiting direct systemic impact.
- Political/institutional: Given Cyprus’s role as a major offshore center, disruptions there can create operational frictions for Russian entities using Cyprus-based structures.

### Policy recommendations and actions
- The CBR, with support of the government, should assess risk factors and possible solutions.
- Use FATF chairmanship to strengthen the AML regime.

### Note on RAM
- 1/ The RAM shows events that could materially alter the baseline path discussed in this report (which is the scenario most likely to materialize in the view of the staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding this baseline. The RAM reflects staff's views on the source of risks and overall level of concerns as of the time of discussions with the authorities.

*Source: _cr13310 - 4. Cyprus.*

### 3.   Joint products in

### 3.   Joint products in 

### STATISTICAL ISSUES — A. Assessment of Data Adequacy for Surveillance
- General: Data provision is broadly adequate for surveillance. However, in the context of emerging data demands for assessing external vulnerabilities, the scope for further data improvements exists.
- 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.
  - Rebasing GDP estimates to a recent year would close the gap between GDP estimate and its components.
  - Rosstat started a national account development plan for 2011–17 to expedite compilation of quarterly GDP estimates consistent with annual GDP estimates.
  - Historical revisions: industrial production index (2008=100) revised in July 2010; annual and quarterly GDP series revised in 3rd quarter of 2010 incorporating the 2006 agriculture census and methodological improvements.
  - 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 analysis of balance sheet vulnerabilities; work underway to disseminate first quarterly sectoral accounts and balance sheets for 2012–14 by 2016.
- Price statistics:
  - Monthly CPI and PPI compiled using the Two-Stage (Modified) Laspeyres (2000=100), cover all regions.
  - Rosstat publishes indices for foodstuffs, nonfood products, and services; since September 2010 publishes monthly price indices broken down by COICOP.
  - Detailed CPI weight data available on Rosstat website beginning in 2006; detailed consumer expenditure data available since 1995 in Prices in Russia.
  - Weights updated annually with revisions introduced in January; weights reflect expenditures in the 12 months ended the previous September.
  - Aggregate price indices compiled for 89 regions, seven federal regions, and the Russian Federation as a whole.
  - Population weights (instead of expenditure shares) applied to individual regional indices, possibly biasing the CPI downwards if price increases are higher in regions with higher per capita expenditures.
  - Detailed PPI weight data published for 2006–2013; detailed weights available only on the Russian version of the website.
  - Further efforts recommended: improve treatment of seasonal items in core inflation index and implement a new household budget survey.
- Government finance statistics:
  - Russia participates in the G-20 Data Gap Initiative and is promoting timely, cross-country standardized government finance data based on GFSM 2001.
  - Main data gaps: unavailability of quarterly primary data to compile general government operation statement, financial balance sheet, and gross debt (by instrument, maturity, residency, and currency).
  - Additional gaps affecting surveillance data quality:
    - Lack of historical quarterly data.
    - Unexplained data breaks (e.g., reclassification of some wage expenses from budgetary central government to regional government accounts following 2011 reforms).
    - Unavailability of monthly data on ruble guarantees prior to 2011.
    - No integrated debt monitoring and reporting system.
    - Lack of reconciliation between fiscal datasets (budget execution, cash flow statement, economic vs functional classification, SDDS fiscal data).
  - Links to websites where fiscal statistics are disseminated can be made more user friendly.
  - Authorities are working to address these issues and the recommendations of the 2010 Data Module ROSC update.
- Monetary statistics:
  - Since July 2008, CBR reports to the IMF, in MFSM-recommended format, summarized data on: (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 breakdown of banking-sector assets and liabilities hinders balance sheet analysis.
  - Adoption of SRFs in full detail recommended (reaffirmed by ROSC mission in 2010) to provide currency and instrument breakdowns.
  - Since March 2011, the Banking System Survey published by the CBR includes a breakdown by national and foreign currency; website publication started in March 2011 only for the banking sector.
- External sector statistics:
  - Balance of payments data broadly adequate; significant improvements made.
  - CBR published gross capital flow data for the private sector to facilitate analysis of complex flows.
  - From 2012, balance of payments compiled according to BPM6; CBR revised historical data (2005–11) consistent with BPM6.
  - Historical revision does not provide the same level of detail previously reported on components of financial account statistics, complicating assessment of capital flows by sector.
  - Partial data from diverse sources supplemented by estimates and adjustments to improve coverage (e.g., adjustments to merchandise import data for shuttle trade, smuggling, undervaluation).
  - Statistical techniques used to estimate transactions and positions of foreign-owned enterprises with production sharing agreements; techniques continuously improved.
  - Improvements in coverage and quality of direct investment surveys; CBR participates in Coordinated Direct Investment Survey.
  - Headline reserves data reported weekly with a four-business day lag; comprehensive Reserves Template reported with a lag of 20 days (exceeding SDDS timeliness requirement of one month).

### STATISTICAL ISSUES — B. 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.
- Data ROSC 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 statistical methodologies and best practices.

### STATISTICAL ISSUES — C. Reporting to STA (Optional)
- Data reported for publication in:
  - International Financial Statistics (IFS),
  - Government Finance Statistics Yearbook,
  - Direction of Trade Statistics,
  - Balance of Payments Statistics Yearbook.
- Monetary data reported for IFS are in the format of summarized surveys rather than full-detail SRFs disaggregated by currency and counterparty sector.
- For general government, cash flow statement published in IFS; operation statement (economic and functional classifications) and financial balance sheet published in the annual Government Finance Statistics Yearbook.

### Table of Common Indicators Required for Surveillance (As of June 30, 2013) — key entries
- Exchange Rates: Date of Latest Observation 6/28/2013; Date Received 6/28/13; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 6/24/2013; Date Received 6/28/13; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- Reserve/Base Money (narrow definition): Date of Latest Observation 6/24/2013; Date Received 6/28/13; Frequency of Data D; Frequency of Reporting W; Frequency of Publication W; Memo Items: O, O, LO, LO (Methodol. Soundness) and O, O, O, O, O (Accuracy and Reliability).
- Reserve/Base Money (broad definition): Date of Latest Observation 6/1/2013; Date Received 6/15/13; Frequency of Data D; Frequency of Reporting M; Frequency of Publication M; Memo Items: O,O,LO,LO (Methodol. Soundness) and O,O,O,O,O (Accuracy and Reliability).
- Broad Money: Date of Latest Observation 6/1/2013; Date Received 6/15/13; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M; Memo Items: O,O,LO,LO and O,O,O,O,O.
- Central Bank Balance Sheet: Date of Latest Observation 6/1/2013; Date Received 6/28/13; Frequency M; Frequency of Reporting M; Frequency of Publication M; Memo Items: O,O,LO,LO and O,O,O,O,O.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation 6/1/2013; Date Received 6/28/13; Frequency M; Frequency of Reporting M; Frequency of Publication M; Memo Items: O,O,LO,LO and O,O,O,O,O.
- Interest Rates: Date of Latest Observation 6/30/2013; Date Received 6/30/13; Frequency of Data D/W/M; Frequency of Reporting D/W/M; Frequency of Publication D/W/M.
- Consumer Price Index May 2013: Date Received 6/15/13; Frequency M; Frequency of Reporting M; Frequency of Publication M; Memo Items: O, LO, LNO, O and O, O, O, O, O.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Latest Observation Apr. 2013; Date Received 6/24/13; Frequency M; Frequency of Reporting M; Frequency of Publication M; Memo Items: LO, LNO, LO, O and O, O, LO, O, NA.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Latest Observation May. 2013; Date Received 6/24/13; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 6/1/2013; Date Received 6/28/13; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- External Current Account Balance: Latest Observation 2013:Q1; Date Received 4/5/13; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q; Memo Items: O, O, O, LO and LO, O, O, O, O.
- Exports and Imports of Goods and Services: Latest Observation 2013: Q1; Date Received 4/5/13; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q.
- GDP/GNP: Latest Observation 2013:Q1; Date Received 6/1/13; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q; Memo Items: O, O, O, O and O, O, LO, O, LO.
- Gross External Debt: Latest Observation 2013:Q1; Date Received 6/28/13; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q.
- International Investment Position: Latest Observation 2012; Date Received 6/29/13; Frequency A; Frequency of Reporting A; Frequency of Publication A.

### Statement by the IMF Staff Representative on the Russian Federation (September 18, 2013) — substantive findings, projections, and policy recommendations
- Incoming data since completion of the Article IV consultation in June surprised on the downside; does not alter thrust of staff appraisal.
- Activity and inflation developments:
  - Growth in 2013Q2 estimated seasonally-adjusted quarter-on-quarter at only 0.1 percent, compared with 2013Q1 growth of 0.0 percent.
  - Weak investment and industrial production, possibly due to completion of large projects in the energy sector.
  - High frequency indicators for July/August, survey data, expectations of higher oil prices, and consensus forecasts point to a pick-up in growth in 2013H2.
  - August inflation unchanged from July at 6.5 percent y/y, reflecting higher utility prices and some pass-through from exchange rate movements.
  - 2013H1 federal and general government nonoil deficit outturns broadly as expected, but lower spending masked somewhat lower nonoil revenues.
- Financial conditions:
  - Financial conditions weakened slightly in August and improved a bit in September.
  - Ruble depreciated about 0.5 percent vis-à-vis the currency basket in August (and by 8 percent since May 22); central bank intervened, selling fx, and repeatedly adjusted the basket exchange rate band upward.
  - MICEX stock index and Russia’s EMBI+ spread worsened slightly in August; MICEX rebounded markedly in September.
  - Since May 22, spreads have widened by about 55 bps.
  - Authorities successfully placed a four-tranche USD 7 billion Eurobond issue on September 9.
- Staff forecast revisions:
  - Revised down GDP growth forecast by about 1 percent in 2013 and around ¼ percent in 2014, to around 1½ percent and 3 percent, respectively.
  - This suggests a small negative output gap is opening up.
  - Staff now forecasts a wider federal government nonoil deficit of about 10.6 percent of GDP in 2013, compared with 10.0 percent in the staff report, reflecting weaker nonoil revenues (and a similar shift for general government).
  - Overall deficit expected to remain broadly unchanged due to upward revisions in oil prices for the year as a whole and the impact of the weaker ruble.
- Policy advice and recommendations:
  - For 2013, consistent with the fiscal rule, staff advises maintaining expenditures at planned levels, allowing automatic stabilizers to work.
  - Over the medium term, given the probable temporary nature of the slowdown, staff urges gradual fiscal consolidation to generate higher savings of oil revenues.
  - Despite the slowdown, staff slightly marked up its forecast for 2013 year-end inflation from 6.1 to 6.2 percent, reflecting recent inflation data and expected pass-through from ruble depreciation; this slightly exceeds the CBR’s target range of 5 to 6 percent for end-2013.
  - For 2014, staff slightly lowered its forecast for year-end inflation from 5.5 to 5.3 percent—to reflect the emerging small negative output gap—which would still be above the CBR’s target range of 4 to 5 percent.
  - On balance, staff advises that monetary policy remain on hold with a tightening bias.
  - Combined with other policy recommendations in 2014, this would help bring inflation toward the mid-point of the CBR’s 4 to 5 percent target range.

*IMF staff report content (selected sections) from the Russian Federation chapter.*

### 6. Financial sector reforms have progressed.  As expected, the new mega-regulator

### 6. Financial sector reforms have progressed.  As expected, the new mega-regulator

### Financial sector reforms and institutional changes
- The new mega-regulator became operational on September 1, combining the functions of banking sector oversight and the dissolved Federal Financial Markets Service under the roof of the central bank.
- The central bank established the Department for Systemic Bank Supervision to oversee Russia’s largest banks.
- Directors welcomed improvements in the financial sector supervisory framework and emphasized need for additional prudential measures in light of continued high growth in unsecured retail lending and rising financial stability risks.
- Implementation of past Financial Sector Assessment Program (FSAP) recommendations was recommended to address weaknesses in the supervisory framework.
- To enhance financial sector efficiency and support for economic growth, Directors advised further strengthening of corporate governance, creditor rights, and competition.

### Macroeconomic performance and near-term outlook
- Real GDP growth has slowed amid weak investment and external demand, but the economy remains close to full capacity with unemployment at historic lows and capacity utilization at pre-crisis highs.
- Short-term indicators are mixed but suggest some recovery of activity in recent months, indicating a stronger growth outlook for the second half of this year.
- Inflation has remained above target due to food prices and regulated tariff hikes, but started to decline gradually since June.
- Recent global financial market turbulence put pressure on the exchange rate, the local bond market, and equities, and may have contributed to an acceleration of capital outflows.
- The current account surplus has been shrinking, reflecting growing imports and deteriorating service and income account balances.

- Staff projections:
  - Real GDP growth: 1.5 percent in 2013 and 3 percent in 2014.
  - Inflation (year-on-year): abating to 6.2 percent by end-2013; remaining above the authorities’ target range of 4 to 5 percent in 2014.

### Monetary policy, exchange rate, and liquidity
- Monetary policy stance remained on hold throughout the first half of 2013 against the backdrop of continued high inflation.
- The CBR has gradually lowered some secondary rates on longer-term facilities to strengthen monetary transmission.
- Money market rates edged up in 2013:Q2 and liquidity conditions were volatile, driven by the budget cycle and seasonal factors.
- Increased flexibility of the exchange rate is expected to help maintain external balances in line with medium-term fundamentals.
- Directors recommended keeping monetary policy on hold with a tightening bias to secure low and stable inflation.
- Completing the transition to a flexible exchange rate and inflation targeting by end-2014 was seen as helpful to anchor inflation expectations and long-term lending rates.
- Strengthening the transmission mechanism of monetary policy was highlighted as important.

### Fiscal policy stance and recommendations
- The fiscal stance turned roughly neutral: the general government balance was in surplus in 2012 but is turning negative in 2013 as revenue growth weakened; expenditure restraint has kept the non-oil balance roughly unchanged from last year.
- The Reserve Fund balance increased following deposit of 2012 oil savings but remains well short of the government’s 7 percent of GDP target.
- Directors considered the 2013 fiscal stance broadly appropriate and encouraged authorities to resist pressures for higher government spending to avoid intensifying inflationary pressures.
- Additional spending for infrastructure should be offset by cuts in lower-priority expenditures.
- To rebuild fiscal buffers and generate sufficient saving of oil revenue, Directors called for a gradual tightening of fiscal policy in the medium term, while some Directors supported a cautious approach given the uncertain global environment.
- Adjustment efforts should primarily focus on rebalancing the mix of spending, enhancing spending efficiency, and pursuing structural reforms, in particular pension reform.
- Directors welcomed the introduction of the new oil-price-based fiscal rule and urged strengthening it further and resisting calls to circumvent expenditure limits.

### Credit conditions and bank sector trends
- Overall credit growth has slowed, while unsecured consumer lending continues to expand at a rapid pace.
- The slowdown in corporate credit has been mainly demand-driven, reflecting low investment and working capital financing due to slower economic activity.
- Declining bank capitalization and tightened prudential regulations have begun to constrain the supply of credit.

### Executive Board assessment and structural reform priorities
- Directors noted that Russia’s macroeconomic policy framework has strengthened and the economy appears to be operating close to full capacity, but growth is slowing and risks are tilted to the downside from potential external and internal shocks.
- To address challenges and increase potential output growth, Directors saw need for further strengthening of policies and decisive implementation of structural reforms, particularly supply-side reforms.
- Ambitious supply-side structural reforms were stressed as necessary to raise medium-term potential growth and reduce vulnerabilities.
- Directors called for policies to boost productivity and improve the investment climate, governance, transparency, and property rights protection.
- Authorities were encouraged to draw on the OECD accession process for advancing and widening the reform agenda.

### Selected macroeconomic indicators and key statistics (2010–14)
- Real GDP (annual percent change): 4.5 4.3 3.4 1.5 3.0
- Consumer prices, period average (annual percent change): 6.9 8.4 5.1 6.7 5.7
- Consumer prices, end of period (annual percent change): 8.8 6.1 6.6 6.2 5.3
- GDP deflator (annual percent change): 14.2 15.5 8.5 6.8 4.9
- General government net lending/borrowing (overall balance, percent of GDP): -3.4 1.5 0.4 -0.6 -0.7
- General government revenue (percent of GDP): 34.6 37.4 36.9 36.8 36.1
- General government expenditures (percent of GDP): 38.0 35.8 36.5 37.5 36.8
- General government primary balance (percent of GDP): -2.9 2.1 1.0 0.1 0.1
- General government nonoil balance (percent of GDP): -13.0 -10.0 -10.9 -10.8 -9.7
- Federal government net lending/borrowing (percent of GDP): -3.9 0.8 -0.1 -0.7 -0.6
- Federal government nonoil balance (percent of GDP): -12.4 -9.5 -10.6 -10.0 -8.9
- Base money (annual percent change): 25.4 20.9 11.3 11.7 12.5
- Ruble broad money (annual percent change): 31.1 22.3 11.9 13.0 13.8
- Export volumes (annual percent change): 5.4 4.2 3.3 2.4 3.3
- Oil export volume (annual percent change): 3.2 -1.9 0.4 1.5 1.5
- Gas export volume (annual percent change): 5.6 6.7 -5.8 0.0 0.0
- Non-energy export volume (annual percent change): 11.3 5.8 6.0 4.4 6.8
- Import volumes (annual percent change): 27.5 16.5 8.6 5.6 6.0
- Total merchandise exports, fob (billions of U.S. dollars): 392.7 515.4 529.1 521.6 520.0
- Total merchandise imports, fob (billions of U.S. dollars): -245.7 -318.6 -335.8 -356.4 -376.8
- External current account (billions of U.S. dollars): 67.5 97.3 74.8 45.7 34.0
- External current account (percent of GDP): 4.4 5.1 3.7 2.1 1.5
- Gross international reserves (billions of U.S. dollars): 479.4 498.6 537.6 537.7 537.7
- Months of imports (of goods and non-factor services): 17.9 14.6 14.5 13.7 13.0
- Percent of short-term debt (reserves): 339 328 338 321 305
- Nominal GDP (billions of U.S.D): 1,523 1,899 2,030 2,186 2,329
- Exchange rate (rubles per U.S.D., period average): 30.4 29.4 30.8
- World oil price (U.S.D. per barrel): 79.0 104.0 112.7 106.0 99.9
- Real effective exchange rate (average percent change): 9.3 4.8 3.7

*Source: IMF Executive Board Concluding Remarks and Russian Federation: Selected Macroeconomic Indicators, 2010–14.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13310.pdf_