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Russian Federation: Staff Report for the 2015 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. European Dept.
Published Date:
August 2015
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Fund Relations

(As of March 31, 2015)

Membership Status: Joined June 1, 1992; Article VIII.

General Resources AccountSDR MillionPercent Quota
Quota5,945.40100.00
Fund holdings of currency4,969.7683.59
Reserve Position975.6516.41
Lending to the Fund
New Arrangements to Borrow891.56
SDR DepartmentSDR MillionPercent Allocation
Net cumulative allocation5,671.80100.00
Holdings5,691.55100.35

Outstanding Purchases and Loans: None

Latest Financial Arrangements

TypeApproval DateExpiration DateAmount Approved (SDR million)Amount Drawn (SDR million)
Stand-by07/28/9912/27/003,300.00471.43
EFF03/26/9603/26/996,305.571,443.45
Of which SRF07/20/9803/26/993,992.47675.02
EFF03/26/9603/26/996,901.004,336.26

Projected Obligations to Fund

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20152016201720182019
Principal
Charges/Interest0.040.040.040.040.04
Total0.040.040.040.040.04

Implementation of HIPC Initiative: Not Applicable

Implementation of MDRI Assistance: Not Applicable

Exchange Arrangements: Effective November 10, 2014, the CBR eliminated its exchange rate corridor and canceled regular FX interventions, adopting a de jure and de facto floating exchange rate regime, with FX interventions to be conducted only to safeguard financial stability. The de jure and de facto exchange rate arrangement used to be categorized as other managed arrangement until November 10, 2014—namely, a controlled floating exchange rate arrangement. The ruble value of a bi-currency basket was used as the operating benchmark for transactions on the domestic foreign exchange market. The basket was composed of €0.45 and US$0.55. The value of the bi-currency basket was determined under the influence of both market factors and exchange interventions by the Central Bank of Russia (CBR). The CBR did not set any quantitative limits on the exchange rate level of the national currency, but its exchange rate policy aimed at keeping short-term fluctuations within an acceptable range, as determined by the floating operating band. Interventions took place both at the limits of the floating operating band and within it. They were triggered once the exchange rate crossed the limits set by a nonintervention corridor, with intervention amounts and intervals established in advance. The limits of the operating bands itself shifted by 5 kopecks once a predetermined cumulative volume of interventions has been reached. Effective October 13, 2010, the CBR eliminated the fixed trading band of Rub 26-41 against the bi-currency basket, in force since January 2009. Since 2010 the CBR has widened the moving intervention band from 3 to 7 rubles in four installments. Up until March 3, 2014, the CBR had successively reduced the volume of cumulative interventions triggering a 5 kopeck shift in the operational band from originally $700 million to $350 million and widened the non-intervention band from 1 to 3.1 rubles. Following the heightened financial turmoil from the crisis in Ukraine, the CBR decreased the sensitivity of the band to interventions, increasing the cumulative FX sales required to shift the operational band to US$1.5bn. Effective May 22, 2014, the amount of interventions in all sub-bands was reduced by US$100 million, from US$400 million to US$300 million and from US$200 million to US$100 million, with the aim of reverting to greater flexibility. Further, effective June 17, 2014, the cumulative volume of interventions leading to a shift in the floating operational band was reduced from US$1.5 billion to US$1 billion; the US$100 million intervention sub-band was eliminated leading to an increase in the non-intervention zone by 2 rubles; and the amount of interventions in the remaining sub-band was reduced from US$300 million to US$200 million. Effective August 18, 2014, the exchange rate corridor was widened to RUB 9 from RUB 7 and interventions were eliminated within the corridor. The cumulative interventions to move the corridor by 5 kopeck were reduced to USD 350mn from USD 1bn. Effective November 5, 2014, daily interventions were capped at US$350 million when the ruble touches the exchange rate corridor or is outside of it. Effective November 10, 2014, the CBR adopted a floating exchange rate regime by abandoning the exchange rate-based operational indicators of its exchange rate policy. The Russian Federation accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement with effect from June 1, 1996, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

Article IV Consultation: Russia is on the standard 12-month consultation cycle. The last consultation was concluded on June 27, 2014.

FSAP Participation, FTE and ROSCs: Russia participated in the Financial Sector Assessment Program during 2002, and the FSSA report was discussed by the Board in May 2003, at the time of the 2003 Article IV discussion (IMF Country Report No. 03/147). An FSAP update took place in the fall of 2007, and the FSSA report was discussed by the Board in August 2008, at the time of the 2008 Article IV discussion. An FSAP financial stability assessment took place during April 2011, and the FSSA report was discussed by the Board in September 2011, at the time of 2011 Article IV Consultation.

A recent pilot of the IMF’s new Fiscal Transparency Evaluation (FTE) was undertaken in October 2013 and published in May 2014. It assessed the Russian government’s fiscal reporting, forecasting, and risk management practices against the IMF’s revised Fiscal Transparency Code

Resident Representative: Mr. Bikas Joshi, Resident Representative since July 1, 2013, will be succeeded by Mr. Gabriel Di Bella in mid-July, 2015.

World Bank Group Relations1

The World Bank Group’s engagement with the Russian Federation is three-dimensional: global, regional, and national. At the global level, Russia has increased its contributions to IDA and supports the provision of global public goods through contributions to global funds. In addition, the Bank offers its expertise to help prepare Russia for the presidency of international fora such as APEC, G20, and BRICS. At the regional level, the World Bank Group supports Russia as an emerging donor for less-developed countries in ECA. Russia is already a significant provider of development assistance through a growing portfolio of IDA/IBRD-administered trust funds. At the national level, the World Bank Group aims to maximize its development impact by reaching out to the regions in Russia with the most development needs.

The current World Bank Group 2012–2016 Country Partnership Strategy (CPS) for the Russian Federation was discussed by the Board of Executive Directors in December 2011. It is aligned with government priorities and is organized around four strategic themes: (i) increasing growth and diversification through better management of public finances, improved investment climate and innovation, stronger financial sector, better infrastructure, and more effective protection of the environment, (ii) expanding human potential by strengthening skills and social services through improvements in education, health, and social protection, (iii) improving governance and transparency through more accountability and better service standards in public administration, procurement, and financial management, and (iv) deepening Russia’s role in global and regional development related to the provision of global public goods and Russia’s growing role as a donor. The CPS is being implemented largely as anticipated, with some delays in project preparation and emerging modifications in the lending program. The strategy endorsed an envelope of up to US$5 billion in IBRD lending to support the program over the CPS period. IFC committed to invest between US$3.8 and US$4.8 billion for its own account, plus the significant mobilization of counterpart funds. The Multilateral Investment Guarantee Agency (MIGA) continues to support foreign investors through the provision of political risk guarantees.

A. International Bank for Reconstruction and Development

The Russian Federation joined the World Bank (IBRD and IDA) in 1992. The Bank has provided financing for 70 projects in different sectors totaling slightly over US$10.5 billion in IBRD loans. About 95 percent of the total portfolio has already been disbursed. The IBRD active lending portfolio amounts to US$668 million (as of April 2015) across ten projects in the areas of public sector management, municipal infrastructure, land registration, cultural heritage preservation, financial literacy, hydro-meteorology, and forestry. The undisbursed balance is US$353 million as of April 2015. All of the Bank’s financing to Russia is provided in the form of investment project financing.

Advisory Services and Analytics (ASA) are an important part of IBRD’s engagement in Russia. ASA products are helping to modernize public finance and administration and improve social service delivery and the investment climate. The Bank also provides technical assistance in areas such as early childhood development, indigenous people, social development, and social accountability. In FY15, along with two traditional flagship Russia Economic Reports, the World Bank is finalizing a report on Social Mobility and Opportunity and another on Aging.

Demand for Reimbursable Advisory Services (RAS) in Russia is steady, with continued interest from the regions and growing demand from the federal government. Since 2007, the World Bank has entered into more than 80 RAS agreements, which cover a wide range of activities that are well aligned with Russia’s development challenges. RAS are also of increasing importance for Russia’s regions, as more than 30 of Russia’s subnational governments have signed at least one RAS with the World Bank (15 currently active in nine different regions).

B. International Finance Corporation

Russia became an IFC member in 1993. Since then, IFC’s long-term investments in Russia have totaled US$10 billion,2 including US$3.5 billion in syndicated loans across 263 projects. IFC’s current committed investment portfolio in Russia is US$1.5 billion in about 100 projects with roughly 70 clients. In FY14, IFC committed US$655 million for its own account and mobilized US$104 million from partners. Since the beginning of FY15, IFC has committed about US$60 million for its own account.

In line with the World Bank Group CPS, IFC continues to support economic diversification and growth in Russia by helping its private sector clients realize long-term development potential, with a particular focus on maximizing impact in less-developed regions. These efforts include the creation of new high-skilled jobs; the expansion of high value-added manufacturing; and the improvement of transport and social infrastructure to provide people and companies with better access to goods and services. In addition, IFC provides Russian companies and banks with strategic advice on achieving long-term sustainable growth, increasing energy and resource efficiency, and improving corporate governance, and also advises Russian regions on structuring municipal infrastructure projects.

C. Multilateral Guarantee Agency

MIGA’s gross exposure in Russia was US$804 million as of February 2015 (MIGA’s third-largest gross and net exposure). MIGA is involved in eight projects in finance, infrastructure, manufacturing, agribusiness, and services. In dollar terms, MIGA’s exposure is concentrated in Russia’s financial sector (some 80 percent of MIGA’s gross exposure), supporting the investments of global financial institutions in their banking, mortgage, and leasing subsidiaries in Russia. Five out of MIGA’s eight projects are in non-financial sectors, some of them in Russia’s regions, such as agribusiness in Russia’s “black earth” regions of Penza and Tambov and manufacturing in Novocherkassk.

Statistical Issues

(As of May 18, 2015)

I. Assessment of Data Adequacy for Surveillance
General: Data provision is broadly adequate for surveillance. However, in the context of emerging data demands for assessing external vulnerabilities, the scope for further data improvements exists.
National Accounts: Data are broadly adequate for surveillance, but there have been concerns about the reliability and consistency of quarterly GDP estimates among a wide range of users, including Fund staff. The Federal State Statistics Service (Rosstat) started a national account development plan for 2011–17, which will expedite compilation of quarterly GDP estimates consistent with the annual GDP estimates. The Rosstat follows the 1993 SNA in general, although scope exists for methodological improvements in the calculations of volume measures of the production-based GDP estimates, including estimates of the output of financial intermediation services indirectly measured (FISIM). The imputed rental services of owner-occupied dwellings may be underestimated. Improvements in the coverage of source data are constrained by an inadequate response to business surveys. The unavailability of balance sheet data continues to be an obstacle to analyzing balance sheet vulnerabilities; however, work is underway to disseminate the first quarterly sectoral accounts and balance sheets for 2012–14 by 2016.
Price Statistics: Monthly CPI and PPI, both compiled using the Two-Stage (Modified) Laspeyres (2000=100), cover all regions of the Russian Federation. The weights reflect expenditures in the 12 months ended the previous September. Aggregate price indices are compiled for each good and service item for the 89 regions, seven federal regions, and the Russian Federation as a whole. However, population weights, as opposed to expenditure shares are applied to the individual regional indices possibly biasing the CPI downwards if price increases are higher in regions with higher per capita expenditures. Detailed data on total annual sales, which are used to develop weights for the PPI, are published by economic activity on the Rosstat website. The detailed weights are available only on the Russian version of the website, making it less accessible to some users. Further efforts to improve the treatment of seasonal items in the core inflation index and a new household budget survey—which has been under consideration for some time—could significantly strengthen data quality.
Government Finance Statistics: The authorities compile comprehensive set of the general government accounts based on the Government Finance Statistics Manual 2001 (GFSM 2001) on annual basis. These data comprise the statement of sources and uses of cash as well as the accrual based government operations (revenue, expenditure and transactions in assets and liabilities), complete balance sheet (including non-financial assets), holding gains and losses and other changes in volume of assets and liabilities, and outlays by functions of government (COFOG). Monthly GFSM 2001 based statement of sources of uses of cash is also compiled for the whole general government sector. The main data gaps are due to the unavailability of quarterly primary data to compile the accrual based general government operation statement, financial balance sheet, and gross debt (by instrument, maturity, residency, and currency). The actual split of annual debt into foreign and domestic refers to the domestic/foreign currency rather than residency. Additional gaps remain that affect the data quality for surveillance, for example the lack of historical quarterly data, unexplained data breaks (for instance the reclassification of some wage expenses from the budgetary central government accounts to the regional government accounts (following 2011 reforms), unavailability of monthly data on ruble guarantees prior to 2011, no integrated debt monitoring and reporting system, and the lack of reconciliation between different datasets of fiscal reporting (budget execution, cash flow statement, economic versus functional classification, fiscal statistics data).
Monetary and Financial Statistics: In the context of the recent global turmoil, analysis of balance sheet effects has been hindered by a lack of comparable data on the currency and maturity breakdown of banking-sector assets and liabilities. Adoption of data reporting in the full detail of the framework for Standardized Report Forms (SRFs), as recommended by an STA mission in 2007 (and re-affirmed by the ROSC mission in 2010), would provide comprehensive information on the currency and instrument breakdowns of the assets and liabilities of the central bank, credit institutions, and other financial corporations. Since March 2011, the Banking System Survey (which is equivalent to the Depository Corporations/Broad Money Survey) published by the Central Bank of Russia (CBR) has included a breakdown of positions by national and foreign currency. Publication of a similar breakdown of positions by national and foreign currency in the central bank and the credit institutions surveys would be useful for analysis.
External sector statistics: Balance of payments data are broadly adequate for surveillance, and significant improvements have been made to enhance data quality. The CBR has recently published the gross capital flow data for the private sector, which would facilitate the analysis of relatively complex flows. Starting from 2012, the balance of payments is compiled according to the framework of the Fund’s Balance of Payments and International Investment Position Manual, sixth edition (BPM6) and the CBR has revised historical data (going back to 2005Q1 for BOP, and to 2011Q1 for IIP), consistent with BPM6.

Partial data from a variety of sources are supplemented by the use of estimates and adjustments to improve data coverage. In particular, the CBR makes adjustments to merchandise import data published by the Federal Customs Service to account for “shuttle trade,” smuggling, and undervaluation. Statistical techniques are also used to estimate transactions and positions of foreign-owned enterprises with production sharing agreements, and these techniques are continuously being improved. At the same time, Russian compilers are seeking to reconcile their data with those of partner countries. Improvements have been made in the coverage and quality of surveys on direct investment, and the CBR is participating in the Fund’s Coordinated Direct Investment Survey (CDIS) and Coordinated Portfolio Investment Survey (CPIS).
II. Data Standards and Quality
Russia is an SDDS subscriber.

Russia participates in the G-20 Data Gap Initiative.

Russia reports data for the Fund’s statistical publications.
Data ROSC was published in 2011.
Russian Federation: Table of Common Indicators Required for Surveillance(As of June 18, 2015)
Date of latest observation (For all dates in table, please use format dd/mm/yy)Date receivedFrequency of Data7Frequency of Reporting7Frequency of Publication7Memo Items:8
Data Quality – Methodologic al soundness9Data Quality – Accuracy and reliability10
Exchange RatesMay 20155/28/15DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1April 20155/29/15MMM
Reserve/Base MoneyApril 20155/20/15DWWO, O, LO, LOO, O, O, O, O
Broad MoneyApril 20155/20/15DMMO, O, LO, LOO, O, O, O, O
Central Bank Balance SheetApril 2015n.a.MMMO, O, LO, LOO, O, O, O, O
Consolidated Balance Sheet of the Banking SystemApril 2015n.a.MMMO, O, LO, LOO, O, O, O, O
Interest Rates2April 2015n.a.MMMO, O, LO, LOO, O, O, O, O
Consumer Price IndexApril 2015n.a./M/M/M
Revenue, Expenditure, Balance and Composition of Financing3 – General Government4Mar. 20155/30/15MMMO, LO, LNO, OO, O, O, O, O
Revenue, Expenditure, Balance and Composition of Financing3 – Central GovernmentMar. 20155/30/15MMMLO, LNO, LO, OO, O, LO, O, NA
Stocks of Central Government and Central Government-Guaranteed Debt5Mar. 20155/18/15MMM
External Current Account Balance2015:Q15/18/15MMM
Exports and Imports of Goods and Services2015:Q14/15/15QQQO, O, O, L OLO, O, O, O, O
GDP/GNP2015:Q14/15/15QQQ
Gross External Debt2015:Q15/14/15QQQO, O, O, OO, O, LO, O, LO
International Investment Position620145/18/15QQQ

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.

This reflects the assessment provided in the data ROSC or the Substantive Update (published on …, and based on the findings of the mission that took place during…) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.

This reflects the assessment provided in the data ROSC or the Substantive Update (published on …, and based on the findings of the mission that took place during…) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

1Prepared by the World Bank.
2Previously IFC reported the total volume of investments, including short-term and long-term. Due to changes in accounting of short-term instruments, they are no longer included in the total investment volume.

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