IMF says Russia banking system appears stable

An International Monetary Fund (IMF) mission, led by Ernesto Ramirez Rigo, visited Moscow during November 13-17, 2017, to discuss the economic outlook and related policies.

At the conclusion of the visit, Ramirez Rigo said, "A cyclical recovery in Russia is gaining pace after a two-year recession, with growth expected to reach around 2 percent this year, supported by higher oil prices and easier domestic financial conditions. Nevertheless, growth is likely to remain low in the medium-term, due to demographics, unaddressed structural bottlenecks as well as enduring sanctions.

Inflation is likely to be just under 3 percent at end-2017, but it is expected to return to around the 4 percent target soon thereafter. The current account surplus is forecasted to improve due to higher oil prices and stronger global demand.

The deficit reduction planned in the 2018-20 federal budget, underpinned by the new fiscal rule, is welcome. The adjustment is warranted due to permanently lower oil prices and the need to increase savings in the oil fund in the face of potentially volatile oil prices. Measures to improve tax collection and the return on state assets - including dividend payout - could boost non-oil revenues. The adjustment on the expendi- ture side should rely on more permanent and better targeted measures, such as parametric reform to the pension system, shifts to means-testing of social assistance programs and reductions in subsidies and tax expenditures. Detailed spending reviews could also create fiscal space for infrastructure and human capital investment. The Central Bank of Russia (CBR) has met its inflation target earlier than expected with the commendable steadfast implementation of their inflation targeting regime.

Conditions are in place for further easing of monetary policy as inflation and inflation expectations have continued to decline since the last Article IV (see Press Release No. 17/270).