Russia is in its seventh year of robust economic growth with higher output and investment in the oil sector having been important conduits of the broad-based recovery from the 1998 crisis, the IMF said in its latest annual economic review. But, while still vibrant, the economy has softened since mid-2004 because of a slowdown in oil production and investment. Consumption has remained buoyant and has been the main source of domestic demand growth, fueled by continued rapid increases in real wages. The economy is expected to continue to grow robustly, although not at the pace seen in the first half of 2004. The IMF Executive Board viewed Russia’s strong fundamentals as a window of opportunity to advance the structural reform agenda.
Fiscal policy has offset much of the stimulus arising from the large terms of trade gains associated with oil price increases, with the general government surplus having increased every year since 2001. The underlying fiscal stance—as measured by the non-oil general government balance—is currently being relaxed, however, and the Board cautioned that this move could exacerbate inflationary pressures and quicken the pace of real ruble appreciation. At the same time, once expansionary cyclical pressures ease, there is ample room to spend more of the oil windfall. Thus, the Board strongly advised against further loosening of fiscal policy in the short term and encouraged the authorities to develop an integrated medium-term fiscal and structural reform plan for utilizing Russia’s oil resources.
|CPI annual average||15.8||13.7||10.9||12.9|
|(percent of GDP)|
|General government balance||0.6||1.1||5.0||7.6|
|(dollars per barrel)|
|Russian oil price||23.5||27.3||34.3||47.3|
The Board urged the authorities to give priority to reforms— especially civil service and public administration reforms—that would improve the investment climate, help nurture new private enterprises, and promote economic diversification.
Monetary policy remains relatively lax. Although reserve money growth has slowed somewhat since mid-2004, it has remained high, as has the growth of broader monetary aggregates. Rising headline inflation and declining interest rates point to a continued accommodative stance.