May 19, 2016 Press Release
IMF COMMUNICATIONS DEPARTMENT
Public Affairs Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100
Russian Federation: Staff Concluding Statement of the 2016 Article IV Mission
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
The Russian economy continues to adjust to the dual shocks of lower oil prices and sanctions. The economic contraction is nonetheless shallower than previous recessions as the authorities’ economic package—a flexible exchange rate regime, banking sector capital and liquidity injection, limited fiscal stimulus, and regulatory forbearance—cushioned the shocks, helped restore confidence and stabilized the banking system.
Outlook and Risks
Yet the recession is extending into 2016, with the economy expected to contract by about 1½ percent due to lower oil prices, weak household income growth, and fiscal consolidation. With oil prices expected to stabilize and domestic financial conditions to ease, the economy is projected to start growing again in 2017 by about 1 percent. Inflation has decelerated significantly due to weak economic activity, a tight monetary policy stance, and the government’s restrictive income policies. Inflation is expected to reach about 6½ percent at end-2016 and fall further towards the central bank’s inflation target during 2017. However, medium-term prospects remain subdued due to a weak oil price outlook, adverse population dynamics coupled with long-standing structural bottlenecks, and the impact of sanctions on productivity and investment. Barring significant structural reforms, long-term growth is likely to settle around 1½ percent.
A key downside risk to this outlook is lower-than-projected oil prices which would adversely affect growth, even if existing buffers would make the situation manageable from an external stability perspective. Also, the absence of credible measures to balance the budget in the medium-term could foster uncertainty and further limit growth. Finally, a persistently weak banking system could negatively weigh on economic prospects as constrained credit supply would affect investment.
Economic Policies
Policies should focus on managing the necessary adjustment to lower oil prices while supporting the recovery by: (1) anchoring the required fiscal adjustment in a credible medium-term plan and balancing the adjustment to minimize the short-term impact on growth; (2) resuming monetary policy loosening as inflation risks subside to mitigate the expected fiscal consolidation and support the recovery; (3) strengthening financial sector institutions to better support growth; and (4) advancing structural reforms to leverage the more competitive exchange rate and rebalance growth towards non-energy tradable goods.
IMF COMMUNICATIONS DEPARTMENT
Public Affairs Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100
page source http://www.imf.org/
