By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Tuesday said that Russia’s economic growth has continued to slow and had projected a Gross Domestic Product (GDP) of two percent (2%) in 2014.
This is coming on the heels of a mission to the Russian Federation by the IMF and led by Antonio Spilimbergo.
“Growth has continued to slow, while inflation remains above target and vulnerabilities persist.We project GDP growth in 2013 to be at 1½ percent, with a slight pick up to 2 percent in 2014 contingent on recoveries in investment and external conditions. ” Spilimbergo said.
According to him, inflation of the Russia Federation is projected to remain above target, with economy still close to its full capacity despite recent slowdown in growth.
Spilimbergo said these projections are subject to risks—prospective tightening of international financial conditions, Russia’s dependence on international oil prices, growth in unsecured credit, and the impact of uncertainty concerning the pace of structural reforms on business climate and investment.
The IMF said fiscal policy of Russia has been well supported by its fiscal rules; though some weaknesses remain.
He affirmed that in 2013, the federal government fiscal deficit is projected to be 0.8 percent of GDP, driven by somewhat weak non-oil revenues. “The overall weaker revenues and lower-than-budgeted privatization receipts have precluded transfers to the Reserve Fund in 2013.” Spilimbergo said.
“For 2014 and even more for 2015-16, budgets appear insufficiently ambitious, including due to optimistic revenue projections based on high oil-price assumptions. In addition, the planned diversion of contributions to the Pillar I pension fund in 2014 will create further pressures in 2015 when it is unwound, as will the use of proposed off-budget loan guarantees and of the National Wealth Fund for infrastructure expenditures. ” he said.
According to the IMF mission, this may result in overall expenditures being above the levels committed under fiscal rule, and may result in decumulation in the Reserve Fund. “It is necessary to rebuild these buffers, including through pension reform and “Monetary policy should continue to focus on reining in inflation, while promoting greater exchange rate flexibility.” the mission advised.
Also, the IMF mission endorsed the moves to address risks in the Federation’s financial sector, but said rapid growth in unsecured consumer credit remains a concern. While agreeing on steps taken by the authorities to, inter alia, tighten risk weights and raise provisioning.
“On structural reforms, the IMF said corporate governance reforms and a reinvigorated privatization agenda would be welcome. Such efforts to increase the transparency and predictability of the business environment should help Russia retain domestic savings and attract foreign investment to support higher and more stable growth. ” the IMF said.
