IMF’s annual Article IV consultations with Russia stress ongoing need for reform

The IMF expects Russian GDP to grow by 1.7 % this year and 1.5 % next year if the oil price remains roughly around $72 a barrel. Largest risks comprise geopolitical tensions, weak growth in developed economies, lack of economic reforms in Russia and weaknesses in its banking system.

The IMF noted its outlook could change due to additional state spending arising from president Putin’s May inaugural Decree. Extra spending on infrastructure, healthcare and education could amount to more than 1 % of GDP per year during 2019−24, raising GDP growth in the next few years to 2 %. However, the impacts e.g. on the economy’s growth potential and inflation cannot be estimated based on available information. Growth in the outer years could become quite slow.

The IMF considers Russia’s general policy of monetary easing correct, but also referred to a possible pick-up in inflation, persisting inflation expectations and risks to the inflation outlook stemming e.g. from the government budget sector. The IMF noted that refining monetary policy communication was important in lowering inflation expectations.
Concerning the banking sector, the IMF paid attention to last year’s failures of several large banks. The IMF emphasised the need to improve supervision of risks, especially as regards related-party lending and the accuracy of financial statements. The IMF noted rehabilitated banks should be returned to private hands in an open way. Privatisation of state-owned banks appears difficult in current conditions.

The IMF stressed that the lack of necessary economic reforms means that Russia’s economic convergence to higher levels is stalled. The IMF staff estimate that the Russian government and state-owned enterprises contribute about a third of GDP. Reducing the role of the state in the economy should start from increasing competition by e.g. lowering barriers to entry and exit, using market-friendly public procurements and inducing changes in how state-owned enterprises operate. Challenges also include excessive regulation and customs operations. The IMF said barriers to foreign trade and FDI need to be reduced.