IMF Executive Board Concludes 2020 Article IV Consultation with the Russian Federation
IMF News, February 9, 2021
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- Published: February 9, 2021
Overview
- Press Release No. 21/36; February 9, 2021.
- The Executive Board concluded the Article IV consultation with the Russian Federation.
- Russia entered the COVID-19 crisis with low growth but strong policy frameworks and significant buffers: disciplined fiscal policy since 2014, low public debt, reserve accumulation, introduction of inflation targeting and significant de-dollarization.
Economic impact of COVID-19 and policy response
- Economic contraction and resilience:
- "The Russian economy, which contracted by 3.1 percent last year (less than the 3.6 percent contraction projected in the Staff Report), has proven more resilient than many other emerging economies."
- Contributing factors to resilience: relatively small service sector, large share of protected public employment, COVID-related restrictions that excluded much of the industrial sector.
- Policy response:
- Fiscal support around 4.5 percent of GDP targeted at the health sector, vulnerable households and the unemployed, and systemically important firms and firms in the most affected sectors.
- Monetary policy: policy rate cut by 200bps to a record-low 4.25 percent; introduction of new liquidity instruments; liquidity support to banks; capital buffers released; regulatory forbearance on loan classification and provisioning.
- External and price effects: low oil prices and geopolitical tensions triggered exchange rate depreciation and some increase in inflation; current account surplus narrowed on low oil prices and weak oil demand.
Outlook and scenarios
- Recovery projection and drivers:
- "The ongoing recovery is projected to accelerate towards the middle of 2021 as the second wave of the pandemic recedes, COVID-19 vaccines become widely available, and oil production cuts are tapered in line with the OPEC+ agreement."
- Authorities intend to withdraw fiscal stimulus as conditions improve.
- Uncertainties and risks:
- Downside risks: spillovers from strict containment measures in key trading partners; geopolitical risks.
- Upside possibility: effective vaccine availability reducing the risk of a protracted pandemic; possible confidence effects and pent-up demand leading to stronger-than-projected recovery.
- "An effective vaccine rollout will be key."
Executive Board assessment and policy recommendations
- General assessment:
- Directors commended the sizeable policy response which should help limit scarring and put a floor on the downturn.
- Short-term risks remain tilted to the downside given the global pandemic situation and geopolitical tensions.
- Fiscal policy guidance:
- Allow for withdrawal of fiscal support as recovery takes hold, but remain vigilant and ready to extend support if needed.
- Welcomed decision to keep the maximum unemployment benefit at its post-March level; suggested considering doing likewise for all unemployment benefits until employment improves, while removing disincentives for formal sector work.
- Should downside risks materialize, use substantial fiscal space to deploy stronger support.
- Commended growth-friendly tax reforms (e.g., permanent reduction of the payroll tax for SMEs) and better targeting of social assistance.
- Recommended gradually phasing out domestic fuel consumption subsidies while cushioning impacts on vulnerable groups.
- Monetary and financial sector guidance:
- Welcomed monetary loosening in 2020 and new liquidity instruments.
- Saw room for additional monetary accommodation amid significant economic slack to prevent inflation from sliding below target as one-off shocks dissipate; nevertheless generally saw merit in authorities’ wait-and-see approach.
- Underscored appropriateness of foreign exchange operations to address disorderly market conditions and recommended separating these clearly from operations under the fiscal rule.
- Banks: welcomed significant buffers; crisis-related losses should not pose a system-wide capital threat. Called for close tracking of restructured loans while forbearance remains in place. Forbearance should not be extended as it obscures true bank health.
- If provisioning pushes banks’ capital below regulatory minima, sound and solvent banks could be allowed extended time to restore capital.
- Welcomed legislative efforts to expand the Bank of Russia’s macroprudential toolkit.
- Noted progress in Russia’s AML/CFT framework but called for further effective steps to address remaining risks.
- Structural reform priorities:
- Increasing potential growth and reigniting income convergence requires far-reaching structural reforms: reduce state footprint, improve business climate, increase competition, address governance shortcomings, reduce regulatory burden.
- Emphasized using national projects as an opportunity to tackle structural bottlenecks.
Selected macroeconomic indicators (highlights from 2017–26 table)
- Real GDP (Annual percent change):
- 2017: 1.8
- 2018: 2.5
- 2019: 1.3
- 2020: -3.6
- 2021 Projection: 3.0
- 2022 Projection: 3.9
- Real domestic demand (Annual percent change):
- 2019: 2.2
- 2020: -5.8
- 2021 Projection: 5.1
- Consumption (Annual percent change):
- 2019: 3.5
- 2020: 2.9
- 2021 Projection: -6.2
- 2022 Projection: 5.6
- Investment (Annual percent change):
- 2019: -1.6
- 2020: 3.2
- 2021 Projection: -5.0
- Consumer prices, period average:
- 2017: 3.7
- 2018: 4.5
- 2019: 4.3
- 2020: 4.0
- Output gap (percent of potential GDP):
- 2019: -0.2
- 2020: -3.0
- 2021 Projection: -1.4
- Public sector, General government revenue (Percent of GDP):
- 2017: 33.4
- 2018: 35.5
- 2019: 35.8
- 2020: 34.6
- 2026 Projection: 33.6
- General government expenditures (Percent of GDP):
- 2017: 34.8
- 2018: 32.6
- 2019: 39.2
- 2020: 36.7
- Net lending/borrowing (overall balance, Percent of GDP):
- 2017: -1.5
- 2018: -4.6
- 2019: -2.3
- 2020: -1.2
- 2026 Projection: -0.8
- Non-oil primary balance (Percent of GDP):
- 2017: -8.4
- 2018: -6.6
- 2019: -10.3
- 2020: -7.1
- Gross international reserves (Billions of U.S. dollars):
- 2017: 432.7
- 2018: 468.5
- 2019: 554.4
- 2020: 583.4
- 2026 Projection: 624.0
- Nominal GDP (billions of U.S. dollars):
- 2017: 1,575
- 2018: 1,653
- 2019: 1,689
- 2020: 1,431
- 2026 Projection: 1,893
- Real per capita GDP, PPP dollars:
- 2017: 25,999
- 2018: 26,677
- 2019: 27,041
- 2020: 25,978
- 2026 Projection: 30,324
- Exchange rate (rubles per U.S. dollar, period average):
- 2017: 58.3
- 2018: 62.8
- 2019: 64.6
- 2020: 72.3
- 2026 Projection: 80.7
- Brent oil price (U.S. dollars per barrel):
- 2017: 54.4
- 2018: 71.1
- 2019: 64.0
- 2020: 42.3
- 2026 Projection: 49.4
IMF Press Release No. 21/36; February 9, 2021.
