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Russia’s budget deficit may exceed forecast in 2016 — IMF

July 13, 2016, 18:00 UTC+3

The International Monetary Fund expects Russia's budget deficit at 3.2% while the Russian Finance Ministry's forecast stands at 3%

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© Artyom Geodakyan/TASS

WASHINGTON, July 13. /TASS/. Russia’s budget deficit may exceed the planned 3% and reach 3.2% of GDP in 2016, according to the documents released by the International Monetary Fund (IMF) on Wednesday.

According to Finance Minister Anton Siluanov, Russia’s budget deficit is on track to reach around 3% of budget deficit by the end of this year, which is in line with President’s request.

Meanwhile earlier the Finance Ministry said Russia’s budget deficit might even reach 4% of GDP in 2016 if oil prices hover around $32 per barrel. According to Deputy Finance Minister Tatyana Nesterenko, at the moment the Ministry targets 3.4% budget deficit taking into consideration all new proposals regarding budget optimization.

The new IMF report has lowered expectations of decline in the Russian economy to 1.2% in 2016 from 1.5% in the previous outlook.

"Real GDP is expected to decline by 1.2% in 2016, as consumption adjusts to lower real wages and tighter credit conditions while investment remains weak," the IMF said.

"Growth is expected to resume in 2017 and reach 1%, as domestic demand slowly recovers on the back of easing financial conditions and pent-up demand," the Fund said in the report.

"Private consumption and investment are likely to remain subdued over the medium-term against a background of lower-than-trend credit growth from a weak banking system and deleveraging, dampened oil prices, and tight fiscal policy," the IMF reported.

Pension reform 

According to the IMF, Russia needs to implement a parametric pension reform to balance the budget by 2020.

The parametric pension reform in Russia "is essential to balance the budget by 2020," the IMF said. "Pension reform that increases retirement age and provides more incentives to stay in the labor force would have the additional benefit of easing demographic pressures on labor supply," the Fund reported.

Proposals made by IMF in respect of the pension reform comprise higher and equal retirement age, reduction of early retirement benefits and improvement of population coverage by the pension system.

Private pension contributions are proposed to be maintained and developed for the purpose of supporting long-term financing of the Russian Economy, the IMF said in the document.

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