Russia: Five Reforms to Increase Productivity, Diversify Growth
IMF News, July 10, 2017
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- Published: July 10, 2017
Context and diagnosis
- Russia is exiting a two-year long recession after a recent crisis.
- The need for a new growth model was already apparent before the recession.
- Past reliance on high commodity prices led to an economy dominated by oil, gas, and mining; the high rate of return on commodities discouraged the development of alternative and more sophisticated products.
- Structural constraints have discouraged private investment and the development of the non energy sector, resulting in a slowdown in catching up with income levels in advanced economies.
- The IMF report highlights opportunities from a more competitive exchange rate.
Core policy recommendations (five reforms)
- Improving the investment climate
- Strengthen property rights and contract enforcement to reassure investors.
- Reduce burdensome business operating and licensing standards and heavy regulation that often discourage international participation in the domestic economy.
- Investing in infrastructure
- Address uneven distribution and poor quality of Russia’s transport network—roads, railways, and ports—across regions.
- Increase connectivity to lower transportation costs, improve firms’ profits, ease access to domestic and foreign markets, and enhance labor mobility so people can relocate for better paying jobs.
- Creating a more efficient goods market
- Reduce burdensome procedures associated with trade, such as complicated customs clearing procedures on imports and exports, to increase exposure to international competition and raise domestic firm efficiency.
- Strengthening trade relationships
- Extend preferential trade agreements beyond immediate neighbors to open new foreign markets and integrate into global commerce.
- If Russian prices become more competitive, exporting Russian companies would be able to benefit more.
- Supporting innovation
- Allocate more resources to research and development, focusing on science and technology.
- Ensure a good institutional and business environment and an efficient goods market to secure returns to innovation policies and enable companies to improve efficiency and devise innovative products and services using new technologies.
Expected impacts and rationale
- Increasing productivity is presented as the foundation of sustainable growth and higher living standards.
- Reforms aim to foster new sources of growth beyond commodity sectors by improving incentives for private investment, supporting non energy sectors, and leveraging a more competitive exchange rate.
Source: IMF Country Focus — “Russia: Five Reforms to Increase Productivity, Diversify Growth” (July 10, 2017).