## Press Release: IMF Approves Three-Year EFF Credit for the Russian Federation _IMF News, March 26, 1996_ ## Source details **Canonical URL:** [Press Release: IMF Approves Three-Year EFF Credit for the Russian Federation](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9613) ## Other formats - [Markdown version](/en/news/articles/2015/09/14/01/49/pr9613/index.md) - [Structured JSON version](/en/news/articles/2015/09/14/01/49/pr9613/index.json) - [Bundle manifest](/en/news/articles/2015/09/14/01/49/pr9613/bundle-manifest.json) ## Bibliographic details - Published: March 26, 1996 --- ### Approval and Credit Details - The IMF approved a credit for the Russian Federation totaling SDR 6,901.0 million (about $10,087 million) under the extended Fund facility (EFF). - The credit is for three years and is equivalent to 160 percent of Russia's quota in the IMF. - Disbursement profile reflecting expected improvement in external performance: - 65 percent of quota in the first year - 55 percent in the second year - 40 percent in the third year - Disbursement frequency: - Monthly until early 1997 - Quarterly thereafter - Program monitoring: - Quantitative targets monitored monthly initially and, starting in early 1997, on a quarterly basis - IMF Executive Board reviews: monthly during the first year of the EFF and quarterly thereafter ### Background and 1995 Performance - Primary objective since late 1991: achieve financial stabilization while transforming to a market-based system. - Stand-by credit approved in April 1995: SDR 4,313.1 million (about $6,304 million). - 1995 program objective: substantial and sustained reduction in inflation via sharply tighter monetary policy and restrictive fiscal policy. - Outcomes in 1995: - Inflation fell to low single-digit monthly rates by end-1995 - Real GDP remained broadly stable in 1995, at an average level roughly 4 percent below 1994 - Current account surplus widened to $4.7 billion from $3.4 billion in 1994 - Introduction in July 1995 of an exchange rate corridor generally judged a success - Structural progress uneven: - Banking sector restructuring slow - Privatization pace and scale below expectations - Much remained to be done on land reform ### Medium-Term Strategy and the 1996 Program - Program aims: - Lower inflation further towards a single-digit annual rate - Achieve medium-term viability of the balance of payments - GDP and inflation projections: - Real GDP growth envisaged: 2.3 percent in 1996; 5 percent in 1998; sustained at 6 percent a year over the rest of the decade - Period average consumer price increases envisaged: 51.2 percent in 1996; 6.9 percent in 1998; from 190 percent in 1995 - External sector projections: - After a surplus of 1.2 percent of GDP in 1995, current account expected to swing into deficits of: - 0.4 percent of GDP in 1996 - 1.7 percent of GDP in 1998 - Coverage by gross foreign exchange reserves of imports of goods and nonfactor services expected to rise: - 2.5 months at end-1996 - 2.9 months by end-1998 - Fiscal strategy: - Reduce overall fiscal deficit (enlarged government) from about 5 percent of GDP in 1995 to: - 4 percent of GDP in 1996 - 2 percent of GDP in 1998 - Local governments and extra budgetary funds programmed to maintain a balanced position; federal fiscal deficit path set equal to enlarged government - Financing of deficits projected without recourse to direct credit from the Central Bank of Russia (CBR) - Revenue and expenditure measures: - Government aims to improve revenue performance by about five percentage points of GDP over the medium-term - Measures to broaden tax base and improve tax administration, including: - Elimination of exemptions (value-added tax, profit tax, excises, import duties) - Selective increases in tax rates, concentrated in the energy sector (higher excises on oil, gasoline and electricity) - Efforts to capture the rapidly growing private sector and reduce tax delinquencies - Expenditure control: - Strict observance of outlay limits under the 1996 budget law - Spending initiatives either covered by 1996 appropriations or handled by reallocating expenditures within overall ceiling - Monetary and exchange rate assumptions: - Targeted reduction in monthly inflation to around 1 percent by end-1996 requires continued restraint in credit policy - Pace of overall credit expansion set to decelerate significantly - Nominal interest rates expected to decline rapidly with lower inflation; real interest rates expected to remain relatively high until well into 1996 - Program assumes continuation of the present exchange rate band until end of June 1996 and a broadly stable nominal exchange rate for the ruble thereafter ### Structural Reforms - Trade: - Complete liberalization of the export regime and reduce weighted average import duty rate - Priority assigned to accession to the World Trade Organization (WTO) - Banking and financial sector: - Address liquidity and solvency issues - Introduce new instruments for bank liquidity management - Improve payments system - Strengthen supervisory capacity of the CBR and prudential regulation - Privatization: - Speed up privatization while ensuring cash privatization is fair and transparent - Maintain opportunities for foreign investor participation - Agriculture: - Address uncertainties about private ownership and inefficient procurement practices - Better targeting of budgetary transfers to the agricultural sector - Urban land, real estate, and securities markets: - Major initiatives to establish legal framework for full private ownership and use of land as collateral - Develop effective legal framework for securities transactions, liquidation and reorganization of insolvent enterprises, and protection of outside investors - Strengthen independence and enforcement power of the Securities Commission - External obligations: - Government intends to accept by the end of the year the obligations of Article VIII, Sections 2, 3, and 4, of the IMF's Articles of Agreement ### Addressing Social Needs - Measures to protect vulnerable groups during transition and ensure growth reduces poverty - Rationalization of subsidies to create room for improving the social safety net - Specific measures: - Increase minimum pension payments along with reform of retirement-age provisions - Increase minimum unemployment benefits and eliminate enterprise employment subsidy schemes ### The Challenge Ahead and External Support - Program described as highly ambitious and requiring bold efforts by the Russian Government - IMF support through the EFF expected to be followed by comprehensive external debt rescheduling to avoid a cash-flow problem from bunching of debt service obligations between 1996 and 2000 - Russia's IMF membership and financial position: - Russia joined the IMF on June 1, 1992 - Russia's quota is SDR 4,313.1 million (about $6,304 million) - Russia's outstanding financial obligations to the IMF currently total SDR 7,099 million (about $10, 376 million) ### Russia: Selected Economic Indicators (as presented) - Real GDP (percent change): - 1993: -12.0 - 1994: -15.0 - 1995: -4.0 - 1996*: 2.3 - 1997*: 3.5 - 1998*: 5.1 - Consumer prices (period average): - 1993: 896 - 1994: 302 - 1995: 190 - 1996*: 51.2 - 1997*: 13.3 - 1998*: 6.9 - Enlarged government fiscal account balance (deficit –) (percent of GDP): - 1993: -7.6 - 1994: -10.1 - 1995: -4.9 - 1996*: -3.0 - 1997*: -2.0 - External current account balance (deficit –) (percent of GDP): - 1993: 1.6 - 1994: 1.2 - 1995: -0.4 - 1996*: -1.4 - 1997*: -1.7 - Gross reserves (in months of imports of goods and non-factor services): - 1993: — - 1994: 1.1 - 1995: 2.6 - 1996*: 2.5 - 1997*: 2.8 - 1998*: 2.9 *Press Release No. 96/13, March 26, 1996.* --- ## References - [Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9613_