IMF Staff Concludes Visit to Russia

IMF News, November 17, 2017

Source details

Press Release No. 17/448
Mission dates: visited Moscow during November 13–17, 2017
Mission leader: Ernesto Ramirez Rigo
End-of-Mission statement: views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board; this mission will not result in a Board discussion.
Key macroeconomic findings:
- "A cyclical recovery in Russia is gaining pace after a two-year recession, with growth expected to reach around 2 percent this year, supported by higher oil prices and easier domestic financial conditions."
- "Growth is likely to remain low in the medium-term, due to demographics, unaddressed structural bottlenecks as well as enduring sanctions."
- "Inflation is likely to be just under 3 percent at end-2017, but it is expected to return to around the 4 percent target soon thereafter."
- "The current account surplus is forecasted to improve due to higher oil prices and stronger global demand."

Observations:
- "The deficit reduction planned in the 2018-20 federal budget, underpinned by the new fiscal rule, is welcome."
- Adjustment rationale: warranted due to permanently lower oil prices and the need to increase savings in the oil fund in the face of potentially volatile oil prices.
Recommended revenue measures:
- Improve tax collection.
- Increase return on state assets, including dividend payout, to boost non-oil revenues.
Recommended expenditure measures:
- Rely on more permanent and better targeted measures, such as parametric reform to the pension system.
- Shift to means-testing of social assistance programs.
- Reduce subsidies and tax expenditures.
- Conduct detailed spending reviews to create fiscal space for infrastructure and human capital investment.

Observations:
- "The Central Bank of Russia (CBR) has met its inflation target earlier than expected with the commendable steadfast implementation of their inflation targeting regime."
- "Conditions are in place for further easing of monetary policy as inflation and inflation expectations have continued to decline since the last Article IV (see Press Release No. 17/270)."
Recommendations and cautions:
- "Further cuts in the policy interest rate should continue as the monetary stance remains tight but with due care to the potential reversal of temporary factors – low food prices and the strong exchange rate – which are partly responsible for the current low inflation."
- The CBR’s enhanced monetary framework beyond end-2017 is welcome.

Observations:
- "The banking system appears stable, notwithstanding the recent rescue of two prominent banks and endemic weaknesses in many small banks."
- Lending activity is increasing, supporting a recovery in bank profitability.
- Non-performing loans (NPLs) appear to have stabilized, but asset quality remains a key weakness.
- There are risks that provisioning may be low in some banks.
Priority actions:
- Strengthen the ongoing asset quality review to ensure banks’ capital basis and support market confidence.
- Adopt and communicate a strategy to address weaknesses identified by the review and ensure transparency around the cost to taxpayers.
Bank resolution framework recommendations:
- The new bank resolution framework should shorten the process of open bank resolution and reduce balance sheet encumbrance, but areas of improvement remain.
- Consider replacing the CBR’s funding with federal government funds, provide for statutory bail-in consistent with international standards, and remove impediments to purchase and assumptions of problem banks by healthy banks.

IMF Staff Concludes Visit to Russia — Press Release No. 17/448, November 17, 2017