## _cr15211 ## Source details **Canonical URL:** [_cr15211](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15211.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15211.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15211.pdf.json) --- ### Impact of Sanctions: context and quantified effects - Over 2011–14, Russia’s growth decelerated more (relative to pre-crisis performance) than in most other countries and comparator groups. - Pre-2014 slowdown contributors: stabilization of oil prices, stalled structural reforms, weak investment, declining total factor productivity (TFP), and adverse population dynamics. - Annualized terms-of-trade shock equivalent to about 8 percent of GDP. - Model-based estimates of sanctions impacts: - Initial reduction in real GDP of 1 to 1½ percent. - Prolonged sanctions could yield cumulative output loss over the medium term of up to 9 percent of GDP. ### Transmission, immediate macro-financial effects, and authorities’ response - Transmission and immediate effects: - Balance of payments shocks from lower oil prices, limited access to international capital markets, and large external debt redemptions in December led to severe ruble pressure end-2014. - Net capital outflows: USD154 billion (about 8 percent of GDP). - Significant decline in FX reserves. - Inflation accelerated sharply after exchange rate depreciation and Russia’s countersanctions (ban on imports of food products). - Banking pressures: deteriorating capital and income positions before depreciation; retail deposit outflows mid-December 2014; CBR raised policy rates worsening banks’ net interest margins; ruble depreciation pressured banks’ risk-weighted capital. - Authorities’ policy package (main pillars): - Move to a floating exchange rate and provision of FX liquidity. - Stabilize the banking system. - Provide some fiscal stimulus while limiting wage indexation to contain second-round inflation effects. - Exchange rate and monetary policy actions: - CBR floated the ruble when market pressures intensified in November 2014. - CBR raised the policy rate to 17 percent, including by 650 bps on December 16th. - CBR expanded FX liquidity facilities (new maturities in FX auctions; broader eligible collateral). - Government directive: five large SOEs to ensure net foreign asset holdings no greater than levels as of October 1st 2014 by March 1st 2015. - Banking-sector support and forbearance: - Temporary regulatory forbearance: moratorium on recognizing negative valuation changes; allow pricing FX assets/liabilities at October 1st 2014 exchange rates; flexibility in loan classification/provisioning. - CBR estimates forbearance sheltered banks’ capital position by up to 2 percentage points. - Forbearance planned to start being lifted in July 2015. - Capital support allocation: initially about 2 percent of GDP—Rub 1 trillion from the 2014 Federal Budget and Rub 400 billion from the National Wealth Fund (NWF)—for recapitalization of 27 large banks (43 percent of system assets), smaller banks affected by sanctions and selected regional banks. - Capital support program later reduced to Rub 830 billion. - Up to 10 percent of NWF’ assets (Rub 400 billion) could be used to capitalize banks for infrastructure projects. - Up to Rub 300 billion from the NWF could be used to finance real sector projects through Vnesheconombank (VEB). - Other fiscal/support measures: - 2015 budget revised to reallocate spending to priority sectors, increase pension spending, support specific sectors and employment, provide budget credit to regions, federal credit guarantees, and use of NWF to support systemically important enterprises and banks. - Government doubled the level of insured deposits. ### Early 2015 developments: output, inflation, external adjustment, banking - GDP: contracted by 2.2 percent y-o-y (-2.5 percent q/q) in 2015Q1 due to declining private consumption and investment despite rising government spending. - Ruble: strengthened significantly due to higher oil prices, tentative easing of geopolitical tensions, policy response, and lower external debt redemptions by corporates. - Inflation: weekly inflation (annualized) decelerated sharply by May 2015; depreciation and countersanctions effects largely dissipated by May 2015. - External sector: - Imports declined sharply in 2015Q1. - Exports fell with global oil prices but volumes broadly constant. - External deleveraging: external debt fell to USD560 billion at end-2015Q1 from USD730 billion at end-2013. - FX depreciation moved real exchange rate closer to medium-term fundamentals. - Banking sector: - Banking crisis avoided but weaknesses persist. - Retail deposits increased from February 2015 as deposit interest rates rose and ruble stabilized. - 650 bps policy rate hike temporarily dried up interbank liquidity; pressures abated after stabilization measures. - Bank profitability deteriorated: credit growth declined sharply, interest margins fell, credit quality worsened. - CBR continued closing banks: number of banks declined by about 115 to around 815 since January 2014; 27 licenses revoked between January–June 2015. - Deleveraging and corporates: - Sanctions forced banks and corporations to deleverage external debt. - Companies turned to local markets and banks for FX funding; net FX position of banks remained positive and sectors exhibited higher short-term external assets than liabilities. - Some corporates rolled over part of external intra-company liabilities. ### Outlook, projections, and risks - Baseline 2015 projection: - Real GDP expected to contract by 3.4 percent in 2015. - FX reserves expected to decline to about USD360 billion (13.6 months of imports). - Current account balance (USD) expected to remain broadly unchanged as import fall and services balance improvement offset oil price effects. - In baseline, external and public debts remain low and manageable. - Medium-term and 2016: - Recovery in 2016 expected to be muted; medium-term prospects weak. - Staff projects weak potential growth in the medium term (around 1.5 percent). - Inflation trajectory: - Recession in 2015 opens an output gap of about 1 percent of potential GDP. - Inflation projected to fall to about 12 percent at end-2015 and close to 8 percent at end-2016. - Main risks: - Geopolitical tensions escalation could produce additional balance-of-payment pressures, confidence deterioration, ruble depreciation, higher inflation, contracting investment, precautionary savings, negative fiscal effects, and additional capital needs for banks. - Other risks: lower/more volatile oil prices; inward-looking policies; rapid deleveraging reducing investment and potential output; spillovers from Ukraine affecting Russian banks. - A faster-than-expected end to sanctions could pose macro challenges via large and volatile capital inflows. - Buffers and mitigating factors: - Positive net IIP: 18 percent of GDP. - Sizable current account surplus: 4.5 percent of GDP in 2015. - Low public debt and no immediate need for government access to international markets due to Reserve Fund buffer. - CBR reserves adequate but could be increased given tail risks; balance-sheet currency mismatches low. ### Regional spillovers: transmission channels, quantified impacts, and reserve adequacy - Spillover channels: trade, remittances, and FDI; financial channel limited. - Trade exposure (exports to Russia, over 9 percent of GDP): Belarus, Lithuania, Ukraine, Turkmenistan. - Remittances (2014, share of GDP, mainly from Russia): - Armenia: close to 20 percent of GDP - Moldova: 24 percent of GDP - Kyrgyz Republic: 30 percent of GDP - Tajikistan: 45 percent of GDP - FDI important for: Armenia, Belarus, Moldova, Tajikistan, Bulgaria, Montenegro. - Quantified growth impacts (2015): - For Belarus, Moldova, and CCA oil importers: adverse spillovers from Russia’s recession account for more than 2.5 percentage points of downward growth revision relative to April 2014 forecast. - For CCA oil exporters: negative spillovers contributed about 1.4 percentage point of the downward revision. - CBR reserves and Fund metrics: - CBR reserves on May 20th 2015: USD 360 billion. - Fund’s basic reserve adequacy metric range: USD 190–280 billion. - Accounting for vulnerability to commodity shocks increases appropriate range to USD 240–350 billion. ### Fiscal policy: short-term stimulus, medium-term consolidation, and fiscal-rule diagnostics - 2015 federal budget: - Non-oil deficit expected to deteriorate by 2 percentage points of GDP compared to 2014 (excluding one-off bank capital support). - Limited tax cuts of about 0.2 percent of GDP. - Assumes gross financing from the RF of about Rub 3 trillion (4 percent of GDP) in 2015, reducing fiscal buffers. - Staff assessment/recommendations: - Slightly expansionary fiscal stance for 2015 supported; structural non-oil deficit expected to deteriorate by 0.4 percent of GDP. - Limit and coordinate quasi-fiscal operations to avoid overly stimulative stance. - Medium-term consolidation required: baseline path implies almost 7 percent of GDP non-oil primary deficit by 2020 and a low Reserve Fund buffer of only 1.0 percent of GDP by 2020. - Additional adjustment of 2–3 percent of GDP over the medium term required to reach staff’s intergenerational equity benchmarks. - Limited fiscal adjustment could begin in 2016, with pace adjustable to protect nascent recovery. - Fiscal-rule diagnostics and suggested modifications: - Improve oil-price based fiscal rule: faster adjustment of oil price benchmark; generate more savings because current/projected non-oil deficits exceed long-term benchmarks. - Specific ideas: include future oil prices in benchmark or convert revenues to rubles using an exchange rate consistent with the oil-price benchmark; change “net financing” of 1 percent of GDP to “net savings” of 1–2 percent of GDP. - Federal NOPD consistent with intergenerational equity estimated in range of 3-4.5 percent of GDP. - Possible fiscal adjustment measures (percent of GDP): - Short-term: up to 2.7 - Cut tax expenditures: 2.0 - Increase excise taxes: 0.7 - Medium-to-long-term: up to 7.1 - Reduce energy subsidies: 1.0 - Better targeted social transfers: 2.0 - Increase retirement age: 2.0 - 3.0 - Reduce early pensions: 0.7 - Improve capital budgeting: 0.4 - Total: up to 9.8 ### Monetary policy, exchange-rate pass-through, and FX operations - Monetary policy normalization: - Since end-January 2015, CBR began unwinding the December 16th emergency rate hike, reducing policy rate by 550 bps. - CBR increased cost of FX repos in March 2015 as FX market normalized; suspended 1-year FX repo in May and announced daily FX purchases of between USD 100–200 million. - Staff view: measured normalization appropriate; gradual policy rate reduction recommended conditional on decline in underlying inflation and inflation expectations. - Prudence warranted due to external outlook uncertainty, potential second-round effects, and need to build credibility under inflation-targeting regime. - Exchange rate pass-through (Box 5 key findings): - Typical exchange rate pass through in emerging markets estimated at 20 percent after 12 months. - Pass through increases up to 45 percent after 6 months when depreciation is greater than 20 percent. - Pass through during depreciation episodes estimated five times greater than during appreciation episodes. - Inflation-targeting countries typically have lower pass through where central bank credibility anchors expectations. - Implications for CBR: - Late 2014–early 2015 ruble depreciation implied large and relatively fast inflation pass through. - Recent ruble appreciation may not produce a large disinflationary effect. - Pre-announced daily FX purchase program helps build precautionary buffers; program should indicate time-frame to avoid perception of targeting an exchange rate level. - Consider limiting FX allotments as FX interbank market normalizes and large FX debt redemptions end. ### Banking sector measures, resolution, and FSAP implementation - Anti-crisis package (forbearance + public support) stabilized the banking system; forbearance combined with intensified supervision. - Recommendations: - Strengthen asset-quality transparency to improve market confidence. - Tailor capital support to individual bank needs; adjust program parameters to strengthen incentives and reduce public cost. - Lift forbearance promptly by end-2015 alongside implementation of capital support program. - Further align new resolution legislation with Key Attributes for Effective Resolution Regimes, including powers to use a bridge bank and bail-in unsecured uninsured liabilities. - FSAP implementation status (May 2015 highlights): - Legislation adopted to empower CBR to use professional judgment and expanded supervisory authority. - Unified administration regime for banks adopted with provisions on information exchange, shareholder dilution, conversion of subordinated debt, and restricted CBR capital support authorization to systemically important institutions. - Remaining measures pending: some FSFM/insurance powers, prompt remedial action framework, macroprudential oversight, and certain repo/clearing limits. ### Macroeconomic projections and key statistics (selected) - Real GDP (percent): 3.4 (2012), 1.3 (2013), 0.6 (2014), -3.4 (2015), 0.2 (2016), 1.0 (2017), 1.5 (2018), 1.5 (2019), 1.5 (2020). - Consumer prices (end of period, percent): 6.6 (2012), 6.5 (2013), 11.4 (2014), 12.5 (2015), 7.8 (2016), 5.0 (2017), 4.0 (2018), 4.0 (2019), 4.0 (2020). - Labor force and unemployment: unemployment rate 5.2 (2014), 6.5 (2015), 6.5 (2016). - Gross international reserves (billions of U.S. dollars): 537.6 (2012), 509.6 (2013), 405.2 (2014), 362.4 (2015), 374.8 (2016 projected). - Months of imports (GNFS): 14.5 (2012), 13.0 (2013), 11.3 (2014), 13.6 (2015), 13.6 (2016). - Current Account (billions of U.S. dollars): 71.3 (2012), 34.1 (2013), 59.5 (2014), 60.8 (2015), 78.5 (2016). - External debt (percent of GDP): 32.1 (2010), 28.6 (2011), 31.6 (2012), 34.4 (2013), 36.9 (2014), 52.7 (2015), 44.7 (2016 projected). - Net capital outflows: USD154 billion (about 8 percent of GDP) in the episode described. - CBR reserves on May 20th 2015: USD 360 billion; Fund adequacy ranges: USD 190–280 billion (basic), USD 240–350 billion (accounting for commodity vulnerability). ### Structural reform priorities and long-term considerations - Key priorities to boost medium-term growth: - Avoid global de-integration. - Improve governance and property-rights protection. - Increase competition in domestic markets. - Reduce government footprint and limit excessive regulation. - Pursue pension reform to address adverse demographics. - Advance financial deepening and a more efficient banking system. - Structural measures are critical to foster efficiency, confidence, investment, support non-energy tradables, and diversify the economy. *Italic: IMF staff report content as contained in _cr15211 (selected sections and tables).* ### 1. Impact of Sanctions _____________________________________________________________________________ 5 ### 1. Impact of Sanctions ### Context - Over 2011–14, Russia’s growth decelerated more (relative to pre-crisis performance) than in most other countries and comparator groups. - Contributing factors to the pre-2014 slowdown: stabilization of oil prices, stalled structural reforms, weak investment, declining total factor productivity (TFP), and adverse population dynamics. - Excessive regulation, weak governance, and a large government footprint discouraged efficiency-enhancing investment. - In the second half of 2014, the dual external shock from oil prices and sanctions exacerbated the slowdown: - Sanctions triggered a sudden stop as Russian firms’ access to international markets was impaired; geopolitical tensions increased uncertainty and weakened confidence. - In late 2014, the economy was also affected by the sharp decline in terms of trade due to falling oil prices. - The annualized terms-of-trade shock is equivalent to about 8 percent of GDP. ### Transmission and Immediate Effects - The ruble came under severe pressure at end-2014 due to: - Balance of payments shocks from lower oil prices, - Limited access to international capital markets, - Concerns about large external debt redemptions in December. - These factors led to large net capital outflows: USD154 billion or about 8 percent of GDP (the highest level since 1999–2000) and a significant decline in FX reserves. - Inflation accelerated sharply following the exchange rate depreciation and Russia’s countersanctions (ban on imports of food products). - Financial-stability concerns: - Prior to the sharp depreciation, banks’ capital and income positions were already deteriorating. - Mid-December 2014: retail deposit outflows created liquidity pressures, asset prices declined, and the Central Bank of Russia (CBR) raised policy interest rates, worsening banks’ net interest margins. - Ruble depreciation put pressure on banks’ risk-weighted capital. ### Quantified Estimated Impacts of Sanctions (Box 1) - Model-based estimates suggest that sanctions and counter-sanctions could initially reduce real GDP by 1 to 1½ percent. - Prolonged sanctions could lead to a cumulative output loss over the medium term of up to 9 percent of GDP. ### Authorities’ Policy Response (summary of measures and effects) - Main pillars of the policy package: - Accelerating the move to a floating exchange rate regime and provision of FX liquidity. - Stabilizing the banking system. - Providing some fiscal stimulus while limiting wage indexation to contain second-round effects of the depreciation on inflation. - Exchange rate and monetary policy actions: - CBR floated the ruble when market pressures intensified in November 2014. - CBR raised the policy rate to 17 percent, including by 650 bps on December 16th to limit financial stability risks and respond to a worsening inflation outlook. - CBR expanded FX liquidity facilities: new maturities added to CBR’s FX auctions and the definition of eligible collateral broadened. - Government issued a directive requesting five large SOEs to ensure that by March 1st 2015, the size of their net foreign asset holdings is no greater than the level as of October 1st 2014. - Banking-sector support: - Temporary regulatory forbearance measures included: moratorium on recognizing negative valuation changes for securities portfolios; allowing banks to price FX-denominated assets and liabilities at October 1st 2014 exchange rates; flexibility in loan classification and provisioning. - CBR estimates that regulatory forbearance sheltered banks’ capital position by up to 2 percentage points. - Forbearance planned to start being lifted in July 2015. - Funds initially worth about 2 percent of GDP—Rub 1 trillion from the 2014 Federal Budget and Rub 400 billion from the National Wealth Fund (NWF)—were allocated for recapitalization of 27 large banks (43 percent of system assets), smaller banks affected by sanctions and selected regional banks. - The capital support program was subsequently reduced to Rub 830 billion, as estimates of capital needs were decreased. - Up to 10 percent of NWF’ assets (Rub 400 billion) could be used to capitalize banks for implementing infrastructure projects. - In addition, up to Rub 300 billion from the NWF could be used to finance real sector projects through Vnesheconombank (VEB). - Other fiscal/support measures: - Government revised the 2015 budget to reallocate spending to priority sectors, increase spending on pension and support specific sectors and employment, provide budget credit to regions, federal credit guarantees, and use of the National Wealth Fund to support systemically important enterprises and banks. - The government doubled the level of insured deposits. ### Recent Developments (early 2015) - GDP contracted by 2.2 percent y-o-y (-2.5 percent q/q) in 2015Q1 due to declining private consumption and investment, despite rising government spending. - The ruble strengthened significantly, supported by higher oil prices, tentative easing of geopolitical tensions, improvements in confidence due to the authorities’ policy response, and lower external debt redemptions by Russian corporates. - Weekly inflation (annualized) decelerated sharply, suggesting the impact of the depreciation and countersanctions largely dissipated by May 2015. - External sector adjustment: - Imports declined sharply in 2015Q1 reflecting weak domestic demand and expenditure switching from the ruble depreciation. - Exports fell with global oil prices but volumes remained broadly constant. - External deleveraging continued: external debt fell to USD560 billion at end-2015Q1 from USD730 billion at end-2013. - Exchange rate depreciation moved the real exchange rate closer to medium-term fundamentals. - Banking sector: - A banking crisis was avoided but weaknesses persist. - Higher deposit interest rates and ruble stabilization led to an increase in retail deposits from February 2015 and reduced liquidity pressures. - The 650 bps policy rate hike temporarily dried up interbank liquidity, which abated after stabilization measures. - Strengthening ruble, improved asset prices, declining spreads, bank capital support program and regulatory forbearance reduced pressure on bank capital. - Banks’ profitability continued to deteriorate: credit growth declined sharply, interest margins fell, and credit quality deteriorated. - CBR continued closing banks, mostly very small ones; since January 2014 the number of banks declined by about 115 to around 815, with 27 licenses revoked between January–June 2015. - Deleveraging: - Sanctions forced banks and corporations to deleverage external debt. - Companies turned to local market and banks for FX funding; net FX position of banks remained positive and all sectors continued to exhibit higher short-term external assets than liabilities. - Some corporates rolled over part of their external intra-company liabilities. ### Outlook and Risks - Baseline projection for 2015: - Real GDP is expected to contract by 3.4 percent in 2015. - Drivers: falling real wages and credit growth, declining private consumption, and continued falls in investment. - Net exports will support growth as imports decline due to falling domestic demand and ruble depreciation. - Current account balance (in USD) expected to remain broadly unchanged as a sharp fall in imports and improvement in the services balance mostly offset negative impact of oil prices on exports. - FX reserves expected to decline to about USD360 billion (13.6 months of imports). - In the baseline, external and public debts remain low and manageable. - Medium-term and 2016: - Recovery in 2016 expected to be muted; medium-term prospects weak. - More competitive exchange rate, increasing external demand, and normalization of financial conditions will support a recovery in 2016, but private consumption and investment likely to remain subdued. - Staff’s medium-term projection is based on persistently low oil prices, suggesting a muted recovery. - Expected weak potential growth in the medium term (around 1.5 percent). - Inflation: - Recession in 2015 is expected to open an output gap of about 1 percent of potential GDP. - Inflation projected to fall to about 12 percent at end-2015 and close to 8 percent at end-2016. - Main risks: - Increase in geopolitical tensions is the main risk; escalation could create additional balance-of-payment pressures, a significant deterioration in confidence, ruble depreciation, higher inflation, contracting investment, greater precautionary savings, negative fiscal effects, and additional capital needs for banks. - Other risks: lower/more volatile oil prices; inward-looking policies limiting benefits from a competitive exchange rate; rapid deleveraging reducing investment and affecting potential output; possible spillovers from Ukraine affecting Russian banks despite provisioning against Ukrainian exposure. - A faster-than-expected end to sanctions, while positive, could pose macroeconomic challenges through large and volatile capital inflows. - Buffers and mitigating factors: - Russia has a positive and large net IIP (18 percent of GDP). - Sizable current account surplus of 4.5 percent of GDP in 2015. - Low public debt and no need to access international markets for government financing in the short term due to the Reserve Fund (RF) buffer. - CBR’s reserves remain adequate but could be increased somewhat to reflect vulnerability to tail risks from commodity-price shocks and heightened uncertainty related to sanctions. - Balance-sheet currency mismatches are low and do not limit exchange rate flexibility; existing buffers reduce the likelihood of a systemic event. *IMF staff report: "Impact of Sanctions" (section content provided).* ### 16. Sizeable outward regional spillovers from Russia are unfolding (Figure 8, Box 3). ### _cr15211 - 16. Sizeable outward regional spillovers from Russia are unfolding (Figure 8, Box 3) ### Regional spillovers and transmission channels - Russia has entered a recession amid sharply lower oil prices and geopolitical tensions, producing significant spillovers to many Commonwealth of Independent States (CIS), Ukraine and Baltic countries; spillovers to Eastern Europe are more limited. - Main channels of spillovers: trade, remittances, and FDI (Figure 8, Box 3). - Trade exposures: - Belarus, Lithuania, Ukraine and Turkmenistan: largest share of exports to Russia (over 9 percent of GDP). - Remittances (2014) — share of GDP, mainly sourced out of Russia: - Armenia: close to 20 percent of GDP - Moldova: 24 percent of GDP - Kyrgyz Republic: 30 percent of GDP - Tajikistan: 45 percent of GDP - FDI channel important for: Armenia, Belarus, Moldova, Tajikistan, Bulgaria and Montenegro. - Financial sector channel limited due to relatively small presence of Russian banks, though exchange rate depreciations impacted local banks, especially in highly dollarized economies. - Currency and confidence effects: - Most CIS currencies depreciated or were devalued sharply relative to the US dollar following the ruble’s depreciation; some cases involved large interventions. - Rising dollarization: share of dollar deposits rose to around 60 percent in most CCA countries. - Ruble depreciation and US dollar appreciation placed upward pressure on nominal effective exchange rates for currencies pegged to the dollar. ### Quantified growth and forecast impacts - For Belarus, Moldova, and CCA oil importers: adverse spillovers from Russia’s recession in 2015 account for more than 2.5 percentage points of the downward growth revision relative to April 2014 forecast. - For CCA oil exporters: negative spillovers from Russia contributed about 1.4 percentage point of the downward revision in the growth forecast. - Slower medium-term growth in Russia is expected to negatively impact the medium-term outlook of both CIS and Baltic countries. ### Reserve adequacy and CBR reserves - On May 20th 2015, CBR’s reserves stood at USD 360 billion. - Under the Fund’s basic reserve adequacy metric, reserves within a range of USD 190–280 billion would be deemed appropriate. - Taking into account Russia’s vulnerability to commodity shocks would increase the range of appropriate reserves to USD 240–350 billion. - Additional reserves could be justified given that Russia’s access to international capital markets is impaired. ### Authorities’ views on growth and risks - Ministries of Finance (MoF) and Economic Development (MED): - Expect the contraction in economic activity to be milder in 2015 and forecast positive growth of about 2.5 percent in 2016. - Envisage medium-term potential output growth at around 2.5 percent (staff’s estimate around 1.5 percent). - Emphasize importance of preserving and rebuilding buffers, deepening links to CIS countries and Asia, and note risks of long-lasting sanctions and lower oil prices. - Central Bank of Russia (CBR) forecasts: - Decline of 3.2 percent in 2015 - Growth of between -1.2 and 0.7 in 2016 ### Fiscal policy: short-term stimulus and medium-term consolidation - 2015 federal budget: - Non-oil deficit expected to deteriorate by 2 percentage points of GDP compared to 2014 (excluding one-off bank capital support program). - Limited tax cuts of about 0.2 percent of GDP. - Assumes gross financing from the RF of about Rub 3 trillion (4 percent of GDP) in 2015, reducing fiscal buffers. - Staff assessment and recommendations: - Supported a slightly expansionary fiscal stance for 2015; structural non-oil deficit of general government expected to deteriorate by 0.4 percent of GDP. - Recommended limiting and coordinating quasi-fiscal operations to avoid an overly stimulative fiscal stance. - Medium-term consolidation required: under the maximum spending allowed by the fiscal rule, staff expects some stimulus in 2016 followed by consolidation. - Baseline consolidation path would result in: - A relatively large non-oil primary deficit (almost 7 percent of GDP) by 2020 - A low Reserve Fund buffer (only 1.0 percent of GDP) by 2020 - Additional adjustment of 2–3 percent of GDP over the medium term would be required to reach staff’s intergenerational equity benchmarks. - A limited fiscal adjustment could begin in 2016, but pace may be adjusted to protect a nascent recovery or respond to a prolonged recession. - Fiscal rigidities and constraints: - Fiscal rule mechanics and pension indexation create challenges for achieving fiscal adjustment. - Full indexation of pension benefits (to 2015 inflation) could permanently increase spending by about 1.1 percent of GDP in 2016, requiring offsetting spending reductions to comply with the fiscal rule. ### Fiscal rule — diagnostics and suggested modifications - Staff view: Russia’s oil-price based fiscal rule (introduced December 2012) could be improved to: - Allow for a faster adjustment of the oil price benchmark to oil-market developments. - Generate more savings because current and projected non-oil primary deficits exceed long-term fiscal benchmarks. - Specific modification ideas: - Include future oil prices in the oil-price benchmark (as in Mexico and Mongolia) or convert revenues to rubles using an exchange rate more consistent with the oil price benchmark. - Change “net financing” of 1 percent of GDP allowed under the rule to “net savings” of 1–2 percent of GDP to safeguard intergenerational equity. - Long-term benchmark implication: - Federal non-oil primary deficit (NOPD) consistent with intergenerational equity estimated in the range of 3-4.5 percent of GDP. ### Possible fiscal adjustment measures (percent of GDP) - Short-term: up to 2.7 - Cut tax expenditures: 2.0 - Increase excise taxes: 0.7 - Medium-to-long-term: up to 7.1 - Reduce energy subsidies: 1.0 - Better targeted social transfers: 2.0 - Increase retirement age: 2.0 - 3.0 - Reduce early pensions: 0.7 - Improve capital budgeting: 0.4 - Total: up to 9.8 ### Monetary policy: measured normalization - CBR actions: - Initiated easing cycle and introduced changes to FX facilities. - Since end-January 2015, began unwinding December 16th emergency rate hike, reducing its policy rate by 550 bps. - Banks relied on FX repos to ease dollar funding pressures; CBR started to increase the cost of these facilities in March 2015 as FX market normalized. - In May, CBR suspended the 1-year FX repo facility and announced a program of daily FX purchases of between USD 100–200 million. - Staff view: - Ongoing monetary policy normalization is appropriate and should continue at a prudent pace. - Disinflation drivers: recession, ruble stabilization, and partial wage indexation in the budget. - Gradual reduction in policy rate recommended, commensurate with decline in underlying inflation and inflation expectations. - Factors arguing for prudent pace: uncertainty over external outlook, potential for second-round effects from exchange rate depreciation, and CBR’s need to build credibility under the newly introduced inflation-targeting regime. - Surveys of inflation expectations should be used cautiously as expectations appear mainly adaptive. - Easing of policy rates should be conditional on a reduction in external and financial stability risks. *Source: _cr15211 - 16. Sizeable outward regional spillovers from Russia are unfolding (Figure 8, Box 3).* ### Box 5. Exchange Rate Pass-through ### Box 5. Exchange Rate Pass-through ### Key findings from the analysis - Exchange rate fluctuations can have a significant impact on the evolution of inflation and inflation expectations; central banks should carefully estimate exchange rate pass through to inflation. - Because nominal exchange rate fluctuations in Russia have been relatively limited in the recent past, exchange rate pass through to consumer prices has been estimated using data for emerging markets. The analysis suggests: - i. The size of the exchange rate fluctuation matters. In particular, a larger exchange rate depreciation tends to lead to a greater impact on inflation (a larger exchange rate pass through). For example, the typical exchange rate pass through in emerging markets is estimated at 20 percent after 12 months. However, the pass though increases up to 45 percent after 6 months when the depreciation is greater than 20 percent. - ii. Episodes of depreciation are associated with greater exchange rate pass through than episodes of appreciation. In particular, the estimated pass through during periods of depreciation is five times greater than during episodes of appreciation. - iii. Inflation-targeting countries typically have lower pass through. However, this result holds only in countries where the central bank has built sufficient credibility to anchor inflation expectations. ### Implications for the Central Bank of Russia (CBR) and monetary policy normalization - The ruble depreciated significantly in late 2014-early 2015, suggesting that the inflation pass through was large and relatively fast. - The recent appreciation of the ruble, while helpful in bringing inflation down, may not produce a large disinflationary effect. - Introducing flexibility in the exchange rate regime is often accompanied by higher-than-normal volatility; hence it is important for the CBR to establish credibility by anchoring inflation and inflation expectations under the new regime. - Staff and authorities concurred that the pace of interest rate normalization should be cautious given the greater and faster-than-expected exchange rate pass-through and prevailing disinflationary pressures. The CBR expects inflation to come down to about 12–14 percent by the end-2015 and between 5.5–7.5 percent by end-2016, provided there are no additional shocks, and views its inflation target of 4 percent as realistically achievable by 2017. ### Recommendations for FX operations and messaging - The pre-announced daily FX purchase program to build precautionary buffers would help guard against tail risks given Russia’s limited access to international capital markets and vulnerability to commodity shocks. - The strategy should be strengthened by indicating the time-frame the central bank expects to be conducting these operations, thereby avoiding an open-ended policy that may be misconstrued as targeting an exchange rate level. - The central bank could consider limiting further the FX allotments (FX liquidity facilities) to ensure facilities remain sufficient for emergency purposes as the FX interbank market normalizes and large FX debt redemptions end. *Italic: Source — Box 5. Exchange Rate Pass-through (from the provided IMF content).* ### 39. The Russian economy is in a recession in 2015 due to lower oil prices and sanctions. The ### 39. The Russian economy is in a recession in 2015 due to lower oil prices and sanctions. The ### Economic outlook and external position - The Russian economy is in a recession in 2015 due to lower oil prices and sanctions. - The external position will remain challenging due to deleveraging in the face of limited market access. - Growth should resume in 2016 due in part to the authorities’ policy response and higher oil prices. - The recovery is likely to be hampered by unaddressed structural bottlenecks and adverse population dynamics, leading to weak medium-term growth prospects. ### Risks and macroeconomic policy stance - Staff welcomes the authorities’ policy response to stabilize the economy. - Significant uncertainties remain regarding oil prices and geopolitical risks. - Given these risks, the macroeconomic policy stance must remain prudent. ### Fiscal policy: short-term stimulus and medium-term consolidation - The short-term fiscal stimulus in the 2015 budget is appropriate but medium-term consolidation is required. - A slightly expansionary fiscal stance is adequate for 2015 given cyclical considerations and available fiscal space. - Use of off-budget measures—investment by the NWF and issuance of guarantees—should be coordinated to avoid an overly stimulative fiscal stance. - Fiscal consolidation is required over the medium term to adjust to lower oil prices, rebuild buffers and safeguard intergenerational equity. - The needed fiscal adjustment should protect public investment, education and health care spending, and could be anchored by revisiting the fiscal rule. - Permanent and credible fiscal measures could include: - (i) pension reform, - (ii) reducing energy subsidies, and - (iii) better targeting social transfers. ### Monetary policy guidance - Monetary policy normalization should continue at a cautious pace. - Factors supporting disinflation include: the dissipating one-off effect of the exchange rate depreciation in late 2014–early 2015, the economic contraction, the partial wage indexation in the 2015 budget, and the recent ruble appreciation. - The pace of easing should be commensurate with the decline in underlying inflation and inflation expectations. - External risks, the potential for second-round effects, and the central bank’s need to build credibility call for cautious monetary easing. - The normalization in the FX interbank market and the end of large FX debt redemptions appropriately led to an adjustment of the parameters of FX liquidity facilities, but limiting allotments could be considered. - The FX purchase program to rebuild precautionary buffers is understandable but an open-ended policy should be avoided to prevent the perception that the CBR is targeting a specific exchange rate level. ### Banking sector measures and resolution framework - The anti-crisis package comprising temporary forbearance and public support has been successful in stabilizing the banking system. - The forbearance strategy was appropriately combined with intensified supervision, but should be strengthened by increasing asset-quality transparency to further improve market confidence. - The size of the capital support program appears to be sufficiently large, but support to individual banks should be tailored to their specific capital needs. - Parameters of the program should be adjusted to strengthen incentives and reduce cost to the public sector. - Forbearance should be lifted promptly by end-2015 along with the implementation of the capital support program. - Despite progress in improving the bank resolution framework, additional steps should be considered to better align the new legislation, over time, with the Key Attributes for Effective Resolution Regimes, including the powers to use a bridge bank and to bail-in unsecured uninsured liabilities. ### Structural reforms to boost medium-term growth - Boosting medium term growth requires re-invigorating the reform agenda. - Key reform priorities: - Avoiding global de-integration, - Improving governance and property rights protection, - Increasing competition in domestic markets, - Reducing the government’s footprint in the economy and limiting regulations. - These initiatives are critical to foster efficiency, confidence and investment, support the non-energy tradable sector and diversify the economy. - Pension reform would help improve labor force dynamics in the face of negative demographic trends. - Financial deepening and a more efficient banking system are needed to support long-term growth. *IMF staff assessment as presented in the source content.* ### 46. It is proposed that the next Article IV consultation be held on the standard 12-month ### _cr15211 - 46. It is proposed that the next Article IV consultation be held on the standard 12-month cycle. ### Recent developments and growth - Growth was decelerating as oil prices stabilized, albeit at a high level. - Falling real wages and confidence are leading to a fall in consumption. - PMI points to a recession. - Sanctions and a terms-of-trade shock resulted in exchange rate depreciation. ### Oil prices, GDP, and labor - Oil Price and Real GDP Growth series show Brent and Real GDP growth with noted averages: - Average growth (2001Q1-2007Q4) - Average growth (2011Q1-2014Q4) - Labor and productivity: - Labor force projected to continue declining. - Productivity: pre-existing downward trend likely to deepen further. - Unemployment remains at record lows (series through 2015). - Capital outflows at record highs. ### Monetary and financial developments (2013–15) - Ruble depreciation intensified in Q4 2014 due to the decline in oil prices, sanctions and weakening confidence; large external debt redemptions in December 2014 increased pressures. - Policy responses: - Large FX interventions by the CBR in October were followed by a move to a flexible exchange rate. - Emergency policy rate hike in December of 650bps to stem ruble pressures. - Increased provision of FX via FX liquidity facilities. - These steps supported a stabilization of markets and risk sentiments. - Sources: Central Bank of the Russian Federation; Bloomberg; IMF staff estimates and calculations. ### Banking sector developments and soundness (2008–15) - Deposits and dollarization: - Weakening depositor confidence led to short-lived deposit outflows in both FX and rubles. - Corporations increased ruble savings; dollarization has not grown after controlling for valuation changes. - Credit growth: - Financial tightening is slowing credit growth, driven by the retail segment, especially unsecured consumer lending. - Retail and corporate lending (Y-o-y percent change) show marked deceleration through May-15. - Soundness indicators (2011–15): - Overdue loans and NPLs rising: household and corporate shares (percent of total loans). - Loan-Deposit Spreads increased across short-term and long-term retail and corporate segments. - Earnings and capitalization: - Capital to RWA and Return on equity tracked; deterioration noted through Mar-15. - Net open FX position to capital remained positive on and off balance sheet. - Loan-to-deposit ratio improving. - Reliance on CBR liquidity is easing. - Financial Soundness Indicators (selected): - Capital to risk-weighted assets: 13.7 (2012), 13.5 (2013), 12.5 (2014), 12.9 (April 2015). - Core capital to risk-weighted assets: 8.5 (2012), 9.1 (2013), 9.0 (2014), 9.1 (April 2015). - NPLs to total loans: 6.0 (2012), 6.0 (2013), 6.7 (2014), 7.5 (April 2015). - Return on assets: 2.3 (2012), 1.9 (2013), 0.9 (2014), 0.5 (April 2015). - Return on equity: 18.2 (2012), 15.2 (2013), 7.9 (2014), 4.8 (April 2015). ### Corporate sector developments (2008–15) - External financing and deleveraging: - Sanctions have cut off external financing to most Russian companies. - Corporations facing higher external borrowing costs; markets priced higher default risk leading to external deleveraging. - Gross external debt (billions of U.S. dollars) shows corporations and banks series through Mar-15. - Domestic substitution: - Corporations turning to local banks; corporate credit growth remains healthy. - Increased tapping of domestic bond markets. - Market spreads and indicators: - Spreads on external corporate bonds (basis points): CEMBI Composite and CEMBI Russia spreads tracked through Jun-15. - CDS spreads of corporations (basis points): Financials and Non-Financials series through Mar-15. ### Macroeconomic outlook and projections (selected) - Real GDP: - Real GDP contributions to y-o-y growth by Investment and Consumption shown through 2020 projections. - Growth expected to contract with the drop in oil prices and sanctions. - Projections and key macro indicators (selected from Medium-Term Framework): - GDP growth at constant prices (percent): 3.4 (2012), 1.3 (2013), 0.6 (2014), -3.4 (2015), 0.2 (2016), 1.0 (2017), 1.5 (2018), 1.5 (2019), 1.5 (2020). - Consumer prices (end of period): 6.6 (2012), 6.5 (2013), 11.4 (2014), 12.5 (2015), 7.8 (2016), 5.0 (2017), 4.0 (2018), 4.0 (2019), 4.0 (2020). - Labor force (percent of total population) projected through 2020 (series displayed). - Current account and capital outflows: current account balance and net private capital flows show large swings; projections through 2020. - Selected macro series from Table 1 (2008–16): - Real GDP: 5.2 (2008), -7.8 (2009), 4.5 (2010), 4.3 (2011), 3.4 (2012), 1.3 (2013), 0.6 (2014), -3.4 (2015), 0.2 (2016). - Consumer prices, period average: 14.1 (2008), 11.7 (2009), 6.9 (2010), 8.4 (2011), 5.1 (2012), 6.8 (2013), 7.8 (2014), 15.6 (2015), 7.5 (2016). - Unemployment rate: 6.2 (2008), 8.2 (2009), 7.3 (2010), 6.5 (2011), 5.5 (2012), 5.5 (2013), 5.2 (2014), 6.5 (2015), 6.5 (2016). ### External position and financing (2008–15; projections to 2020) - Sectoral external positions: - Corporate sector is the only sector with more external liabilities than assets. - No sector shows aggregate maturity risk with short-term assets exceeding short-term debt. - Compared to 2007, banks have a positive net foreign asset position; corporations have a lower net external debt position; household debt is domestic and low. - Reserves and liquidity: - Large reserve level at the CBR mitigates exchange rate and liquidity risks. - Gross international reserves (billions of U.S. dollars) from Table 1: 537.6 (2012), 509.6 (2013), 405.2 (2014), 362.4 (2015), 374.8 (2016 projected). - Months of imports (GNFS) in Table 2 and Table 7: 14.5 (2012), 13.0 (2013), 11.3 (2014), 13.6 (2015), 13.6 (2016). - Balance of payments (Table 2 highlights): - Current Account (billions of U.S. dollars): 71.3 (2012), 34.1 (2013), 59.5 (2014), 60.8 (2015), 78.5 (2016). - Trade Balance (billions of U.S. dollars): 191.7 (2012), 181.9 (2013), 189.7 (2014), 144.6 (2015), 174.4 (2016). - Exports (f.o.b) series: 527.4 (2012), 523.3 (2013), 497.8 (2014), 374.6 (2015), 404.9 (2016). - Imports (f.o.b): -335.8 (2012), -341.3 (2013), -308.0 (2014), -230.0 (2015), -230.5 (2016). - Capital and financial account: -30.9 (2012), -45.4 (2013), -172.6 (2014), -103.6 (2015), -66.1 (2016). - Gross external financing need (Table 11, billions of US dollars): 121.0 (2010), 90.8 (2011), 115.8 (2012), 211.2 (2013), 177.5 (2014), 96.8 (2015), projections through 2020 shown. ### Fiscal policy and public finances - General government (percent of GDP, Table 4): - Revenue: 37.7 (2012), 36.9 (2013), 37.5 (2014), 35.0 (2015), 35.3 (2016). - Expenditure: 37.3 (2012), 38.2 (2013), 38.7 (2014), 39.8 (2015), 39.5 (2016). - Net lending/borrowing (overall balance): 0.4 (2012), -1.3 (2013), -1.2 (2014), -4.8 (2015), -4.2 (2016). - Primary balance: 1.0 (2012), -0.6 (2013), -0.4 (2014), -3.8 (2015), -3.0 (2016). - Non-oil balance: -7.0 (2008, Table 1), and nonoil balances remain substantially negative across years (e.g., Non-oil primary structural balance: -10.8 (2012), -11.8 (2013), -11.0 (2014), -11.4 (2015), -11.8 (2016) in Table 4). - Federal government (percent of GDP): - Net lending/borrowing (overall balance): -0.1 (2012), -0.5 (2013), -0.5 (2014), -3.3 (2015), -3.9 (2016). - Federal nonoil balance also deeply negative across the projection horizon. - Fiscal rule and oil funds: - World oil price assumptions and projected impacts on Oil funds (Reserve Fund and NWF) are included in tables. - General government debt: 12.7 (2012), 14.0 (2013), 17.8 (2014), 18.8 (2015), 20.2 (2016). ### Monetary accounts and liquidity (selected, Table 5) - Monetary authorities (billions of rubles): - Base money: 7,960 (2013), 8,598 (2014), 9,140 (2015), 9,349 (2016). - Gross international reserves (GIR, billions of U.S. dollars series in table): 537 (2012), 510 (2013), 385 (2014), 367 (2015), 380 (2016 projected). - Monetary survey (billions of rubles): - Broad money: 32,227 (2013), 37,272 (2014), 43,032 (2015), 46,523 (2016). - Ruble broad money: 27,405 (2013), 31,405 (2014), 32,111 (2015), 33,164 (2016). - Forex deposits (1/ data at accounting exchange rates): 4,821 (2013), 5,867 (2014), 10,922 (2015), 13,358 (2016). - CPI inflation (12-month change, eop): 6.6 (2013), 6.5 (2014), 11.4 (2015), 12.5 (2016), with projections thereafter. ### External debt sustainability and stress tests - External debt dynamics (Table 11 and Figure 12): - External debt (percent of GDP): 32.1 (2010), 28.6 (2011), 31.6 (2012), 34.4 (2013), 36.9 (2014), 52.7 (2015), projected 44.7 (2016), 40.4 (2017), 38.0 (2018), 36.3 (2019), 34.3 (2020). - Change in external debt: -6.2 (2010), -3.4 (2011), 3.0 (2012), 2.8 (2013), 2.6 (2014), 15.7 (2015), -8.0 (2016), -4.3 (2017), -2.4 (2018), -1.7 (2019), -2.0 (2020). - Identified external debt-creating flows and contributions from current account deficits, automatic debt dynamics, and residuals are detailed for 2010–2020. - Gross external financing need (billions of US dollars): 121.0 (2010), 90.8 (2011), 115.8 (2012), 211.2 (2013), 177.5 (2014), 96.8 (2015), with projections through 2020. - Bound and scenario tests: - Figures present interest rate shocks, CA shocks, combined shocks, 30 percent depreciation, and growth shocks with baseline and historical scenarios. - Baseline and scenario averages for growth, interest rates, and current account variables indicated in Figure 12 boxes. ### Inflation expectations and price perceptions (2009–15) - Inflation expectations of the population have typically been adaptive and above observed inflation. - In recent months (through 2015), one-year ahead inflation expectations have come down but remain high. - Short-term consumer and producer price expectations show a lower proportion expecting prices to increase, and a higher share expecting prices to stop accelerating. *Source: IMF staff report content as contained in _cr15211 (figures, tables, and narrative excerpts).* ### Annex I. Implementation of Past IMF Recommendations ### Annex I. Implementation of Past IMF Recommendations ### Fiscal Policy - Consider flexibility in the event of a more severe cyclical downturn. - The budget for 2015 is consistent with cyclical considerations and available fiscal space. Quasi-fiscal spending via NWF and issuance of guarantees may provide further stimulus. - Adhere to the fiscal rule to support its credibility and the medium-term fiscal consolidation. - Adopted fiscal rule is followed in the budget for 2015–17. Possible enhancements to the fiscal rule, to better account for oil-price changes and to anchor needed medium-term fiscal consolidation, are currently being discussed. - Take additional measures to ensure long-term viability of the public pension system. - A renewed public debate is ongoing on further changes to the pension system, including gradually increasing the statutory retirement age. - Reduce spending pressures and increase efficiency gains to create space for infrastructure development. - NWF investments—via recapping commercial banks and VEB—and state loan guarantees are to be used to support infrastructure investments and lending to the real sector. However, anti-crisis measures have crowded out budgeted investment expenditures. ### Monetary Policy - Tighten monetary policy stance to achieve the 2015 inflation target and anchor inflation expectations. - Policy rates were increased. The CBR has maintained its medium-term inflation target of 4 percent. - Continue moving to an inflation-targeting regime and a fully flexible exchange rate once the current uncertainty subsides. - The inflation targeting regime was formally adopted on schedule, at end 2014. The move to further exchange rate flexibility was accelerated amidst market turbulence in late 2014, with the CBR removing its intervention bands to facilitate a more rapid adjustment to external shocks. ### Financial Sector Policy - Monitor build-up of systemic risks through regular stress testing exercises and increased oversight. - Supervision of banks was intensified through additional CBR representatives at banks (165, as of April 1, 2015, compared to 57 on July 1, 2014). Amidst market stress, in December 2014, the CBR introduced temporary regulatory forbearance on loan classification, provisioning, and valuation accounting. A bank recapitalization program is being implemented; the government has also approved the use of up to 10 percent (400 billion rubles) of the NWF resources to support banks. - Implement the remaining Financial Sector Assessment Program recommendations. - The recently passed legal reforms on bank resolution do not fully incorporate the recommendations of the 2011 FSAP and Financial Stability Board Peer Review. In particular, it does not provide for a number of tools contemplated in the Key Attributes for Effective Resolution Regimes such as bridge banks and bail-in of all unsecured uninsured liabilities. - Take steps to reduce banking sector fragmentation through consolidation and enhancing competition among banks. - To support financial stability, the CBR has revoked over 114 banking licenses since January 1, 2014, mostly from small banks, following established resolution procedures. ### Structural Policies - Curtail state involvement in the economy, reduce price distortions, take further measures to increase investment and productivity, and revive the nearly-stalled privatization program. - State involvement in economic activity has increased, with a shift to locally produced goods and services in procurement for local and municipal needs, and state support to import substitution in the real sector. Countersanctions increased price distortions by banning food imports from many countries. A part of the government anti-crisis package is aimed at supporting small and medium enterprises by reducing their financial and administrative costs. The privatization agenda remains stalled, given current market conditions. *Annex I. Implementation of Past IMF Recommendations* ### Annex IV. Key FSAP Recommendations and Implementation ### Annex IV. Key FSAP Recommendations and Implementation ### Short term (implementation within 12 months) - Empower the CBR to use professional judgment in interpreting laws and regulations, issuing enforceable risk management guidance, and applying it to individual banks. - Status in May 2015: Legislation adopted. - Approve pending amendments to expand CBR supervisory authority over bank holding companies and related parties, and eliminate restrictions on information-sharing with other domestic and foreign supervisors. - Status in May 2015: Legislation adopted. CBR authorized to conduct consolidated supervision and supervise related parties. - Allow the CBR to sanction individual directors and managers, raise capital requirements on individual institutions, and impose restrictions on transactions between affiliates. - Status in May 2015: Legislation adopted. Restrictions applied on transaction between affiliates. New requirement on implementation of Pillar 2. - Ensure the unified securities and insurance supervisor (FSFM) has the power to issue secondary regulation to interpret the law, as well as industry-wide binding norms. - Status in May 2015: Pending. With the merger of the CBR and FSFM, implementation guidelines are being developed. - Empower the FSFM to require insurers to have in place internal controls and risk management systems commensurate with the complexity of their business. - Status in May 2015: Legislation pending - Apply fit and proper requirements to directors and key management of insurers on an ongoing basis. - Status in May 2015: No decision - Make home-host notifications and cross-border cooperation in insurance mandatory for the FSFM. - Status in May 2015: No decision - Adopt pending legislation that empowers the FSFM to appoint a provisional administrator, freeze assets, and wind down distressed securities firms. - Status in May 2015: Legislation pending ### Medium term (implementation in 1–3 years) - Adopt a prompt remedial action framework for banks. - Status in May 2015: Draft regulation under preparation. - Pursue efforts to ensure an effective macro prudential oversight. - Status in May 2015: No decision. - Require government guarantee for all CBR loans that are unsecured or not backed by marketable collateral or guarantees. - Status in May 2015: No decision. CBR has suspended providing unsecured loans. - Require repo transactions to take place using central counterparty clearing. - Status in May 2015: No decision. However, economic incentives have been implemented. - Set limits on concentration of collateral in the repo market. - Status in May 2015: No decision - Introduce a unified administration regime for all banks (systemic or otherwise) with broad powers for the administrator. - Status in May 2015: Unified legislation adopted. Provisions include timely exchange of information, mandatory dilution of shareholders prior to use of public funds, purchase and assumption transactions, conversion of certain subordinated debt into equity and greater powers to sanction former insiders. CBR’s authorization to provide capital support is restricted to systemically important institutions. - Open-bank assistance such as loans, capital injections, nationalization by the Deposit Insurance Agency (DIA) should be restricted to systemic situations. - Status in May 2015: (recommendation noted) *Annex IV. Key FSAP Recommendations and Implementation — Status in May 2015 (changes from last year in bold).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15211.pdf_