IMF worried about Russia?
By Paul
The latest Article IV Consultation’s Preliminary Conclusions on Russia has been released;
“We are concerned that the current high levels of growth cannot be sustained without an acceleration in structural reforms. Analysis suggests that potential output growth is largely driven by productivity gains, with only small contributions from capital and labor, notwithstanding the recent acceleration in investment. These gains reflect the catch-up potential at this stage of economic development, where enterprises have significant scope for upgrading equipment and technologies while labor and capital are reallocating to faster growing sectors. While the mission agrees that there is considerable potential for further unleashing such productivity gains going forward, it is concerned that this cannot continue to be achieved on the scale of recent years, even in an environment with continued high oil prices, without a more determined push for reforms. The fact that Russia's GDP growth is among the lowest in the CIS, despite the strong terms of trade gains, is a reminder of underlying vulnerabilities. We believe that addressing these vulnerabilities by accelerating reforms, while high oil prices are still boosting the economy, should be a matter of priority.
“In view of this, we are concerned about the uneven progress in implementing structural reforms. In several important areas, technical preparations have advanced and the legislative and institutional framework have been strengthened. However, actual implementation appears to be somewhat slow, not least by comparison to the goals for public sector reforms that the government set for itself upon assuming office. Looking ahead, with a view to focusing on reforms that have the promise to quickly increase productivity growth, we believe that priority should be given to reforms of natural monopolies and other sectors where the state effectively remains in control, as well as to administrative and civil service reforms. We, therefore, welcome the decision to speed up the long-delayed reform of the electricity sector, including through increased support from the budget. On the other hand, the increased state ownership in the oil and gas sector raises in our view questions regarding the future dynamism of this sector, which has been a main source of growth until last year. Concerns in this regard are illustrated by the way in which private oil companies took advantage of the steady increase in energy prices from 1999 to increase investments, achieving a sharp reversal of the decade-long contraction in output, a development that stand in stark contrast to the virtual stagnation in the state-controlled gas sector during the same period.”
Related podcast from BBC- Russia's energy wasteland; The G8 summit of industrialised nations being hosted by Russia is likely to be more interesting for what it says about the West's growing reliance on Russia for its energy.