IMF Executive Board Concludes 2017 Article IV Consultation with the Russian Federation

July 10, 2017

On June 30, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Russian Federation.

The Russian economy stabilized in 2016, contracting by just 0.2 percent of GDP, after being hit in 2014 by the dual shocks of lower oil prices and sanctions. The relatively modest reaction to the large external shocks reflects the authorities’ effective policy response—floating exchange rate, banking system liquidity support and capital injections, and limited fiscal stimulus coupled with restrictive incomes policies. The policy response was also enabled by robust buffers.

The more stable oil prices and improved financial conditions will support a return to growth in 2017, with an expected increase in real GDP of 1.4 percent. Growth is forecast to continue at 1.4 percent in 2018. The still negative output gap, weak consumption demand, strengthening of the ruble and lower food prices from a bumper harvest are supporting the convergence of CPI inflation to the Central Bank target of 4 percent at end–2017. With adverse demographics, and barring significant structural reforms that lifts productivity, potential growth is likely to stay at around 1½ percent over the medium term. The main risk to the outlook remains a fall in oil prices.


Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their effective policy response which, drawing on robust buffers, has helped the Russian Federation exit a two‑year recession. Looking forward, Directors stressed the need to reduce the economy’s dependence on oil and rekindle structural reforms to support new sources of growth, accelerate per capita income convergence to that of advanced economies, and overcome demographic challenges.

Directors commended the authorities for reinstating the three‑year fiscal framework in the 2017 budget to reduce policy uncertainty. They emphasized that for the fiscal adjustment to be sustained, it should be underpinned by durable, well‑targeted measures and growth‑enhancing spending. Directors underlined the need for a credible fiscal rule to anchor the adjustment, allow a smoother response to oil price changes and build adequate savings. A parametric reform of the pension system would also deliver fiscal savings over time.

Directors welcomed the progress towards achieving the inflation objective. They recommended that monetary policy easing continue, but at a gradual pace, given the uncertain size of the output gap and the potential for disinflation reversal. They encouraged the authorities to shift the focus of their communication strategy to cover a longer horizon and clarify the acceptable departures from the inflation target.

Directors welcomed the steps taken to increase the resilience of the financial system, including an improved bank resolution mechanism. They encouraged further efforts to remove obstacles that discourage investors from effectively acquiring assets and liabilities in bank resolutions, replace central bank funding with federal funds, and increase recourse to banking industry capital. Directors also encouraged the authorities to revamp the statutory bail‑in legislation while keeping in mind financial stability implications. Directors noted that there is scope for further tightening the limit on related‑party lending and accelerating the introduction of explicit early bank intervention procedures.

Directors underscored that accelerated structural reforms and broader trade relations can help promote a diversified export mix. They also urged the authorities to strengthen property rights, advance privatization, improve governance, and invest in innovation and infrastructure to build the foundations for higher potential growth.

 

 

Russian Federation: Selected Macroeconomic Indicators, 2014–18

2014

2015

2016

2017

2018

Projections

Production and prices

Real GDP

0.7

-2.8

-0.2

1.4

1.4

Consumer prices

Period average

7.8

15.5

7.0

4.2

4.0

End of period

11.4

12.9

5.4

4.0

4.0

GDP deflator

10.7

8.2

3.6

5.7

3.8

Public sector1

(Percent of GDP)

General government

Net lending/borrowing (overall balance)

-1.1

-3.4

-3.7

-1.9

-1.2

Revenue

33.8

31.8

32.8

32.6

31.9

Expenditures

34.9

35.2

36.4

34.5

33.1

Primary balance

-0.4

-2.6

-2.6

-1.0

-0.2

Nonoil balance

-11.4

-11.4

-9.8

-8.4

-7.6

Federal government

Net lending/borrowing (overall balance)

-0.4

-2.3

-3.4

-1.7

-1.0

Nonoil balance

-9.9

-9.5

-9.0

-7.5

-6.8

(Annual percent change)

Base money

6.3

-4.3

3.8

6.3

6.4

Ruble broad money

1.5

11.3

9.2

9.4

9.6

External sector

Export volumes

-0.2

6.4

0.9

1.4

3.4

Oil

0.1

7.0

-8.5

-2.1

0.7

Gas

-11.3

6.5

1.7

-0.8

0.1

Non-energy

4.1

-7.9

11.2

5.8

6.9

Import volumes

-8.0

-25.2

1.6

2.8

3.8

(Billions of U.S. dollars; unless otherwise indicated)

External sector

Total merchandise exports, fob

496.8

341.5

281.7

330.4

339.1

Total merchandise imports, fob

-307.9

-193.0

-191.7

-203.1

-213.7

External current account

57.5

68.9

25.0

44.0

48.9

External current account (in percent of GDP)

2.8

5.0

1.9

2.9

3.2

Gross international reserves

496.8

341.5

281.7

330.4

339.1

Billions of U.S. dollars

385.5

368.4

377.7

395.3

412.6

Months of imports2

10.8

15.7

17.0

16.8

16.7

Percent of short-term debt

302

450

419

391

417

Memorandum items:

Nominal GDP (billions of U.S.D)

2,064

1,366

1,283

1,498

1,551

Exchange rate (rubles per U.S.D., period average)

38.4

60.9

…

…

…

World oil price (U.S.D. per barrel)

96.2

50.8

42.8

51.9

52.0

Real effective exchange rate (average percent change)

-8.5

-17.4

…

…

…

Sources: Russian authorities; and IMF staff estimates.

1/ Cash basis.

2/ In months of imports of goods and non-factor services.

 
 
 

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

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm

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