Statement by IMF Mission to RussiaPress Release No. 11/454
December 8, 2011
An International Monetary Fund (IMF) mission headed by Mr. Juha Kähkönen visited Moscow during December 1-8. The team met with Acting Finance Minister Siluanov, Bank of Russia Governor Ignatiev, other senior officials, representatives of the business community, and academics. At the conclusion of the visit, Mr. Kähkönen made the following statement today in Moscow:
“The Russian economy has broadly recovered from the 2008-09 crisis, but spillovers from the euro area crisis cloud growth prospects. The outlook is likely to remain subdued with growth projected at 3.5 percent in 2012, following an estimated 4.1 percent in 2011. This outlook is subject to significant downside risks as a worsening euro area crisis could trigger a global downturn, translating into lower commodity prices and nonoil exports, and an abrupt freezing of global bank funding and liquidity. Priorities for policymakers should be to mitigate these risks and prepare contingency plans.
“High oil prices provide an opportunity to reduce fiscal vulnerabilities. This would require saving any budget surplus this year in the oil Reserve Fund and reducing the federal government nonoil deficit in 2012 compared to its 2011 level—by curtailing subsidies, transfers, and tax exemptions—rather than increasing it as planned. Over the medium term, fiscal policy should be anchored on the authorities’ currently suspended nonoil deficit target of 4.7 percent of GDP while putting in place a credible and growth-friendly plan to reach this target by 2015. These efforts will need to be underpinned by structural reforms, including in pensions and healthcare.
“Preserving tight liquidity conditions would help curb inflation. Given the unusually high uncertainties globally and in Russia, the Bank of Russia’s cautious approach regarding policy rate increases is appropriate at this time, but the Bank should stand ready to tighten monetary policy further if needed to reduce inflation to the 2014 target of 4-5 percent set in its Monetary Policy Guidelines. Looking forward, the planned move to formal inflation targeting by 2014, which we support, would be facilitated by continued exchange rate flexibility and improvements to the monetary operations framework.
“Stronger bank oversight is needed to safeguard financial system stability. Pending legislation on connected lending and supervision should be approved without delay, and the Bank of Russia should be granted greater discretion to use professional judgment in applying laws and regulations. The recent extension of the Deposit Insurance Agency’s powers in bank rehabilitation is welcome as is the broader reform of the framework for banking resolution which is currently under legislative consideration.
“Were the euro area crisis to deepen, policies should be geared toward maintaining economic stability. The Bank of Russia should allow the flexible exchange rate to act as a shock absorber and stand ready to utilize emergency liquidity facilities to mitigate the impact on banks, while monetary policy could become more accommodative provided inflation is in check. Fiscal consolidation could be delayed to 2013 and automatic stabilizers allowed to operate to dampen effects on growth.
“Looking beyond the short term, lifting growth onto a sustained higher trajectory and diversifying the economy will require strengthening policy frameworks and reinvigorating structural reforms to improve the investment environment. In this regard, Russia’s forthcoming WTO accession is expected to make the environment more rules-based and predictable. The Strategy 2020 now being formulated provides an opportunity to strengthen policy frameworks and advance the much-needed structural reforms.”