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On June 27, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Russian Federation.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral consultations with its members, usually every year. For this purpose the IMF staff visit the member countries to discuss economic and financial policy with the government and official organisations representatives. The visit concludes with the report to be discussed by the IMF Executive Board.
In April 2014, the Russian Union of Industrialists and Entrepreneurs (RSPP) participated in the IMF Article IV mission consultations. RSPP President Alexander Shokhin, Managing Director for International Relations Marina Larionova, and Managing Director for Economic Policies and Competitiveness Maria Glukhova were interviewed by the IMF team on the current situation for entrepreneurship; business environment and its predictability; main obstacles to starting a business in Russia; and types of economic activities most attractive for investment.
The IMF Staff Report published in June highlights that the growth slowdown in Russia continued in 2013 despite accommodative policies. Real GDP growth slowed to 1.3 percent due to a contraction in investment. The general government balance moved from a modest surplus in 2012 to a deficit of slightly more than 1 percent of GDP.
According to the IMF Executive Board the economic slowdown in Russia reflects mainly structural factors. To boost growth Russia needs to move from a model based on energy exports with increasing oil prices to a new one. They encouraged the Russian authorities to curtail state involvement in the economy, reduce price distortions and take further measures to stimulate investment and increase productivity.
The geopolitical tensions have also led to strong negative consequences for the Russian economy. The IMF projects real GDP growth at 0.2 percent in 2014 with considerable downside risks. Already imposed sanctions and threat of additional sanctions in the future, following Russia's actions in Crimea, have increased the uncertainty of doing business in Russia and badly influenced investments. As a result capital outflows could reach US$100 billion in 2014.
A slight recovery in growth to 1 percent is projected in 2015 due to dynamic exports and stabilization of investment.
The Russian banking system remains stable, and it has moved from a negative to a positive net foreign asset position, limiting aggregate currency mismatch. IMF Executive Directors recommended the Central Bank of Russia to continue the monitoring of systemic risks build-up through regular stress testing exercises and increased oversight. They also called for implementing other Financial Sector Assessment Program recommendations and taking measures to reduce banking sector fragmentation through consolidation and enhancing competition among banks.
The Executive Board concluded that fiscal stance in 2014 is broadly appropriate, but the flexibility could be considered in case of a more severe cyclical downturn. Fiscal consolidation would be needed to rebuild buffers in medium-term perspective.
According to the Board, resisting spending pressures and increasing efficiency gains would help create space for infrastructure investment in Russia.
Russian Federation: 2014 Article IV Consultation-Staff Report; Informational Annex; Press Release
Russian Federation: Selected Issues
IMF Executive Board Concludes 2014 Article IV Consultation with the Russian Federation
IMF Survey: Geopolitical Risks Cloud Future of Russian Economy
Transcript of a Conference Call on the 2014 Article IV Consultation with Russia