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INTERNATIONAL MONETARY FUND
IMF Country Report No. 12/217
RUSSIAN FEDERATION
2012 ARTICLE IV CONSULTATION
August 2012
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2012 Article IV consultation with Russian Federation, the following documents have been released and are included in this package:
• Staff Report for the 2012 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 13, 2012, with the officials of Russian Federation on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 11, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
• Informational Annex prepared by the IMF.
• Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July 27, 2012 discussion of the staff report that concluded the Article IV consultation.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
RUSSIAN FEDERATION
STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION
July 11, 2012
Key Issues
Context: Russia has recovered from the 2008–09 crisis and the output gap is closed. Inflation has fallen due to temporary factors, and is projected to pick up by end-2012. Anti-crisis fiscal stimulus has been only partially withdrawn and a procyclical fiscal expansion is planned this year. Monetary policy has improved—notably by allowing greater exchange rate flexibility, which is providing an effective way of absorbing external shocks—but the policy stance has become too loose. While the banking system has improved with higher profitability and lower NPL ratio, progress on FSAP recommendations has been slow and vulnerabilities persist. The investment climate is weak and the outlook for reforms uncertain.
Challenges: In the short-term, managing domestic demand to avoid overheating. In the medium-term, maintaining macroeconomic stability, strengthening macroeconomic policy frameworks, and improving the investment climate to boost potential growth and realize Russia’s large remaining catch-up potential.
Policy recommendations:
Ambitious fiscal consolidation, and reinstatement of a fiscal anchor;
Monetary tightening to keep underlying inflation on a declining path, and continued progress on the flexible exchange rate and the monetary framework;
Expedited implementation of FSAP recommendations, including the adoption of pending legislation on consolidated supervision and connected lending, and the expansion of the CBR’s powers to exercise discretion based on professional judgment in applying regulations to individual banks;
Delivering on long-awaited structural reforms to help boost investment.
Approved By
Aasim Husain and Vivek Arora
Discussions for the 2012 Article IV consultation were held in Moscow during May 31–June 13. The mission comprised Mr. Spilimbergo (head), Ms. Gust, Messrs. Hofman and Kim (all EUR), Ms. Oura (MCM), Mr. Brekk (senior resident representative), Ms. Dynnikova and Ms. Chebotareva (both local staff). Mr. Mozhin, Executive Director participated in the discussions. The mission met with Minister of Finance Siluanov, Central Bank of Russia Governor Ignatiev, other senior officials, and representatives of financial institutions, corporations, academia, and think tanks.
Contents
RECENT DEVELOPMENTS
OUTLOOK
A. Near-Term Outlook and Risks
B. Medium-Term Outlook
POST-ELECTION OPPORTUNITIES
A. Anchoring Fiscal Policy
B. Tightening the Monetary Policy Stance and Anchoring Low Inflation
C. The Financial Sector: Containing Risks and Promoting Sound Intermediation by Strengthening Supervision
D. Improving the Investment Climate
STAFF APPRAISAL
TABLES
1. Selected Macroeconomic Indicators, 2008–13
2. Balance of Payments, 2008–13
3a. Fiscal Operations, 2009–13
3b. General Government Stock Positions
4. Monetary Accounts, 2008–13
5. Medium-Term Framework and Balance of Payments, 2008–17
6. Medium-Term Framework and Balance of Payments, Reform Scenario, 2008–17
7. Financial Soundness Indicators, 2007–12
8. Indicators of External Vulnerability, 2007–11
9. Public Sector Debt Sustainability Framework, 2009–17
10. External Debt Sustainability Framework, 2008–17
FIGURES
1. Production Indicators and inflation Developments, 2008–12
2. Banking Sector Developments, 2008–12
3. Fiscal Policy, 2004–11
4. Monetary Policy, 2008–12
5. Selected Economic Indicators Under Three Scenarios, 2005–17
6. Governance Indicators for Selected Countries
BOXES
1. External Sector Assessment for Russia
2. Regional Spillovers from Russia
3. Authorities’ Response to Past IMF Policy Recommendation
4. An Example of the Oil Price Rule in Practice
5. Pension Reform in Russia
6. Long-Term Economic Policy Priorities of the New Government
ANNEXES
I. Risk Assessment Matrix
II. Key FSAP Recommendations and Implementation
III. Sensitivity of Inflation Expectations
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INTERNATIONAL MONETARY FUND
July 11, 2012
Prepared By
The European Department (In consultation with other departments and the World Bank)
CONTENTS
I. FUND RELATIONS
II. WORLD BANK-IMF COLLABORATION
III. STATISTICAL ISSUES
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Public Information Notice (PIN) No. 12/90
FOR IMMEDIATE RELEASE
August 2, 2012
International Monetary Fund
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Washington, D. C. 20431 USA
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Fax 202-623-6772
