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WASHINGTON, August 4 (Itar-Tass) —— Russia needs deep reforms to maximise its growth potential, IMF mission chief for Russia Antonio Spilimbergo said.
Russia has recovered from the global economic crisis, showing a growth of more than 4 percent in 2010-2011 mainly owing to high oil prices. This trend is likely to continue at about 4 percent this year, if oil prices stay at around 80 U.S. dollars per barrel. In this case, the economy will be functioning nearly at full capacity and may run the risk of overheating in the short term.
In addition, there are serious medium-term challenges to be dealt with if Russia wants to tap its growth potential effectively. To this end, the government should continue work to improve macroeconomic stability by reducing inflation.
Another key task is to improve the investment climate to allow Russia to attract domestic and foreign investments for diversifying the economy and lessening dependence on natural resources.
In an interview with IMF Survey, Spilimbergo said, “We currently project growth at about 4 percent for 2012 on account of the continued resilience in oil prices. Increases in wages and strong growth in consumption have supported demand, and unemployment continues to decline, reaching levels last seen before the global economic crisis.”
At the same time, he noted that the growth outlook represents “a slight slowdown” from last year, when the economy grew by 4.3 percent. He expects higher inflation at 6.5 percent before the end of the current year.
When asked how exposed is Russia to the ongoing crisis in the eurozone, Spilimbergo said, “Recent global turmoil heavily impacted Russia’s markets. And given that the global economic outlook remains uncertain with risks mainly tilted to the downside, the country is exposed to further shocks. The main channel for transmitting shocks will be through the oil price, given Russia’s continued dependence on natural resources.”
He believes however that the exposure of Russia’s financial system is limited, and “the increased flexibility of the exchange rate will help the economy weather any turbulence”.
Speaking of the fiscal policy, Spilimbergo advised the Russian government to avoid "being procyclical" and to gradually bring the nonoil fiscal deficit to about 5 percent of GDP—a level which will help ensure intergenerational equity. "It will also be important to contain inflation and to allow the exchange rate to fluctuate in response to any external shocks," he added.
Spilimbergo noted that the 2012 budget implies a further increase in the nonoil deficit of about 1 percent of GDP. At the same time, Russia’s Reserve Fund is at a relatively low level compared to the pre-crisis period.
He suggested cutting the deficit by some 1.5 percent of GDP in 2012 and reducing it by a further 1.5 percent of GDP per year through 2015. In his opinion this would help prevent overheating and would allow the government to rebuild the Reserve Fund.
The IMF official stressed the need for Russia to diversify its economy in order to be less dependent on oil.
“The oil is both a blessing and a curse, and we have to ask how Russia can avoid the boom-bust cycles of the past. It will be important to diversify the economy and to use some of the revenues from the oil and gas sector to encourage other sectors of the economy to develop. But in order for this to happen, the business climate has to improve and corruption must be reduced,” he said.
According to Spilimbergo, transparency and fighting corruption are key issues in Russia. “In order to diversify the economy and build growth potential in other sectors, the country has to attract both domestic and international investment. But this cannot happen if there is a problem with corruption and transparency,” he said.