IMF says reforms in Russia could drive GDP growth to 6%

The International Monetary Fund says Russia’s GDP has the potential to grow by 6% annually, provided the government realises the necessary structural reforms.

The Fund especially highlighted reduction of the budget deficit and development of the pension system.

Odd Per Brekk, IMF senior resident representative in Moscow, said GDP growth would remain moderate at 3.5%-4% unless the Russian government pushes for reform. Its base GDP growth forecast for Russia remains at 4% for this and next year.

This week’s report recommends “an ambitious fiscal consolidation path to reduce overheating pressures and vulnerabilities and ensure intergenerational equity.”
A fiscal tightening is needed to avoid increases to the non-oil budget deficit. The IMF urges Russia to reduce the deficit by 1% to 9% of GDP by the end of this year and to 5% by 2015.

The report also encourages “continued strengthening of monetary policy tools and enhanced communication policies to prepare for the successful adoption of formal inflation targeting by 2014.” The IMF forecasts inflation figures of 6.5% over the next two years-above the Russian central bank target of 5%-6%.

In the area of pension reform, Brekk suggests equalising the pension age for men and women, and raising it to 63 years by 2030 and subsequently to 65 years by 2050. At the moment women may retire at the age of 55, while men must work until 60.

Brekk said that considering the demographics then government spending on pensions is expected to increase from 8% to 18% of GDP by 2050. Increasing the pension age would tackle this problem, he said.

 

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