On July 12, 2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation
with the Russian Federation.
Russia’s economy continues to show moderate growth, under sound
macroeconomic policies but with structural constraints and the effects
of sanctions. Output grew by 2.3 percent in 2018, driven by exports and
consumption, which was supported by growth in real wages and higher
Investment registered a moderate increase compared to the previous
year. After reaching historical lows earlier in 2018, inflation picked
up in the second half of the year. One-off factors (such as ruble
depreciation as well as food and fuel price increases) rather than
demand pressures were the major drivers of the increase.
Growth is projected at 1.2 percent in 2019, reflecting a weak first
quarter estimate, lower oil prices and the impact of the higher VAT
rate on private consumption. At the same time, GDP growth should be
supported by an increase in public sector spending in the context of
the national projects announced in 2018. Inflation has begun to fall
and is expected to return to the 4 percent target by early 2020. The
medium-term growth outlook remains modest. Public infrastructure
spending under the national projects together with increase labor
supply due to pension reform could have a positive effect on the growth
rate of potential output. However, absent deeper structural reforms,
long-run growth is projected to settle around 1.8 percent.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal.
Executive Directors commended the authorities for their sound
macroeconomic policy framework, which helped reduce policy
uncertainty, and mitigate the effects of external shocks. Directors
noted that, despite the ongoing recovery, the medium-term outlook
remains modest. They called for continued strong policy efforts and
comprehensive structural reforms to accelerate potential growth,
address institutional weaknesses and governance issues, strengthen
the financial sector, and lift productivity and investment.
Directors agreed that a neutral fiscal policy stance is currently
appropriate. However, they noted that additional fiscal consolidation
would be needed in the long-term to ensure inter-generational equity.
Directors agreed that the fiscal rule anchors fiscal policy and helps
shield the economy from fluctuations in oil prices, thus facilitating
economic diversification. They emphasized that further changes to the
rule, especially after the slight relaxation last year, should be
avoided to firmly establish its credibility. Directors encouraged the
authorities to refrain from quasi-fiscal activities through the
National Welfare Fund (NWF) and that they should continue to invest NWF
funds into high-quality foreign assets.
Directors welcomed the authorities’ implementation of the pension
reform and their plans to boost spending on health, education, and
infrastructure. However, they emphasized that the spending plans should
be well-targeted toward strengthening growth, and efficiently
implemented. Directors noted that Russia’s fiscal revenue framework
could benefit from tax base broadening and further growth-friendly
shifts in taxation to incentivize labor supply, reduce labor
informality, and attract new investment. They recommended that oil
sector taxation should be simplified, and subsidies on domestic fuel
consumption phased out. Directors noted that expenditure on social
assistance needs to be better targeted to have a stronger impact on
Directors supported continued easing of monetary policy, given the
recent inflation outturns. They welcomed the Central Bank of Russia’s
plans to maintain its careful and data-driven approach in setting
monetary policy, as inflation expectations are not yet firmly anchored.
Directors encouraged the CBR to further refine its monetary policy
Directors encouraged the authorities to continue to enhance bank
supervision and regulation. This should include strengthening asset
quality reviews and reducing related-party loans. They also recommended
continued efforts to complete the consolidation of the banking sector.
Directors welcomed the authorities’ recent macroprudential measure to
curb unsecured consumer lending. However, they noted that additional
measures may be needed if lending growth does not moderate. Directors
underscored the importance of having a credible strategy for returning
rehabilitated banks to the private sector in a way that is consistent
with increasing competition among banks.
Directors underscored that ambitious structural reforms will be
important to raise growth. They noted that priority should be given to
creating a more vibrant private sector, and reducing the footprint of
the state. However, Directors emphasized the importance of first
enhancing competition by facilitating the entry and exit for firms and
strengthening the institutional architecture in which firms compete.
They welcomed the government’s advances in the fiscal transparency
agenda and underscored that further progress is needed, including to
report the government’s obligations under Public Private Partnerships,
reduce the share of classified expenditure in the budget, and
strengthen State Owned Enterprise governance.