#5 - JRL 7179
Russia must speed up economic reform, says IMF report
Washington, 11 May: Russia must step up efforts to curb inflation and speed up structural reform to retain a growth rate of over 4 per cent a year, the IMF Executive Board decided after discussing the annual country report on the Russian economy.
"Specifically, directors recommended that monetary policy should give higher priority to combating inflation, while fiscal policy should be geared towards containing upward pressures on the real exchange rate," a board statement reads.
Last year, consumer prices in Russia grew by 15 per cent, slightly exceeding the 12-14 per cent planned by the government, and in the opinion of the IMF remain high this year.
The directors "expressed disappointment with the recent slowdown in the pace of structural reforms and urged the authorities to reinvigorate the process by improving the investment climate, diversifying the economy and raising productivity".
"Even if energy prices were to remain high, structural reform efforts will need to be reinvigorated and will be essential for sustained, broad-based economic growth that is less dependent on the energy sector," the statement says.
The IMF regards as key areas of reform public administration, the civil service, the judiciary, natural monopolies, and housing and communal [utilities] services.
"Directors urged the authorities to resist calls to spend the windfall gains from high oil prices and called for a tightening of fiscal policy in 2004," the report says.
The IMF directors warned the Russian authorities against further reducing tax rates because this would loosen the fiscal stance and "encouraged the authorities to ensure that the tax reductions are offset by measures to broaden the revenue base and/or reduce expenditure".
The IMF urged the authorities to step up efforts against corruption, which is the main restraint on economic growth and the main obstacle to the growth of investments in the private sector.
The report describes the macroeconomic situation in Russia as generally stable. However, "the impetus to growth continued to come mainly from energy exports and consumption reflecting a major rebound in real wages", the report says. The IMF predicts that the Russian economy will grow by 4 per cent this year, down from 4.3 per cent in 2002.
The IMF compiles annual country reports on all its members and then discusses them at board meetings.