News / Economy

IMF: Sanctions Bring Russian Economic Growth to Standstill

FILE - T-shirts, displaying images of Russia's President Vladimir Putin, are on sale at GUM department store in central Moscow, June 11, 2014. The sign reads "Made in Fatherland."
FILE - T-shirts, displaying images of Russia's President Vladimir Putin, are on sale at GUM department store in central Moscow, June 11, 2014. The sign reads "Made in Fatherland."
Reuters

Sanctions imposed on Russia over Ukraine have brought growth to a standstill, had a “chilling effect” on investment and could force Moscow into economic isolation, the International Monetary Fund said on Tuesday.

The international lender's report chimed with words from Russia's central bank governor, Elvira Nabiullina, who told a banking conference that growth was not only unsatisfactory but was putting the country in a difficult situation.

Russia has been hit by sanctions from the United States and European Union, prompting investors to pull out of a country where leaders have used the punitive measures to call for a more self-sufficient, or patriotic, course for the economy.

With the Fund keeping its growth forecast at 0.2 percent this year, and the Russian central bank's at 0.4 percent, both undercut the Economy Ministry's hopes that its 0.5 percent estimate would be beaten this year and come in closer to 1 percent.

“Even without the escalation [of the Ukrainian crisis], prolonged uncertainty and the resulting deterioration of confidence could lead to lower consumption, weaker investment, and greater exchange rate pressure and capital outflows than assumed under the baseline,” the IMF said in a report.

“Moreover, this risks derailing the reform agenda and a shift toward more emphasis on economic self-reliance rather than integration with the rest of the world.”

President Vladimir Putin has called for business leaders to repatriate their assets and reduce their dependence on Western financial markets after Russian officials, many of them his close allies, were targeted by the sanctions which included asset freezes and visa bans.

But measures to try to protect the economy failed to stop Russia losing $80 billion in capital flight in the first five months of the year, the rouble losing 10 percent of its value against the dollar and inflation spiking.

The governor of Russia's central bank, Elvira Nabiullina, said economic growth was too low, causing concerns about investing in Russia.

“The rouble's long-term stability is possible only by lowering the outflow of capital,” Nabiullina told a central bank conference in St Petersburg.

Some Russian officials have played down the impact of sanctions on the economy, but the IMF said the “chilling effect” would hurt an economy at a crossroads when it might dump attempts to diversify away from its oil dependence.

Capital flight

“This comes at a crucial moment when the old growth model based on energy and use of spare capacity has been exhausted and moving to a new growth model based on diversification requires new investment, including foreign technology,” the IMF said.

Antonio Spilimbergo, the IMF's mission chief to Russia, underlined the message to journalists on the sidelines of the St Petersburg conference, saying Moscow should not retreat.

“It's very important to be more integrated with the rest of the world, both financially and economically,” he said. “Now, the recent events are problematic... because it would be a big pity if this takes a toll on investment in the longer term.”

Firms are not spending on tangible assets, such as building and infrastructure, and capital expenditure has been falling month after month, down 2.6 in April.

Instead, money is flowing out of the country. The IMF estimates that capital outflows could reach $100 billion this year, in line with the Russian government's estimates.

The Fund said fiscal budget reserves, of around 0.3 percent of GDP last year, would cushion the overall budget balance from Crimea-related spending on infrastructure.

The Russian government revised down its budget surplus forecast on Tuesday to 0.4 percent.

“Under the baseline scenario, general government debt is expected to remain sustainable and low,” the IMF said.

Russia's sovereign debt to GDP ratio stood at around 12 percent last year, while many developed countries, such as Italy or Japan, carry a burden of 100 percent or more.

The IMF urged the Finance Ministry, however, to remain prudent in spending and when assuming the base oil price for budgetary purposes.

The energy sector accounts for one-fifth of Russia's gross domestic product, two-thirds of exports and around one-third of general government revenues.

“Additional fiscal measures, if needed, should be temporary and of high quality and be set in a medium-term framework that ensures sustainability,” the IMF said. “But additional fiscal consolidation in outer years is needed to rebuild buffers.”

The Finance Ministry manages two sovereign funds, the Reserve Fund and the National Wealth Fund, which stand at $87 billion each. The Reserve Fund, which is to cover budget shortcomings, is meant to reach ultimately 7 percent of GDP.

Last year, it stood at 4.3 percent.

“With the Reserve Fund below its target, the authorities risk pro-cyclical fiscal adjustments in the event of large and lasting oil price decline,” the IMF said.

“This risk is heightened given the already high level of oil prices. Staff argued for more prudent oil-price assumption during the budget process to generate more savings.”

The IMF says the central bank should raise rates to try to curb inflation, which it expects at 6.5 percent by the end of the year, above the central bank's estimate of around 6 percent.

The central bank's general target is 4.5 percent.

“Higher rates would also help reduce capital outflows that have emerged amid geopolitical tensions, global liquidity tightening and rate hikes by major emerging markets' central banks,” it added. 

You May Like

India PM Modi's Party Distances Itself From Religious Conversions

BJP under fire for being slow to rein in hardline affiliate groups allegedly trying to promote Hindu-dominant agenda by luring Muslims and Christians to convert More

Anti-Whaling Group Found in Contempt of Court

Radical environmentalists who threw acid and smoke bombs at Japanese whalers in the waters off Antarctica continue their campaign to disrupt Japan's annual whale hunt More

UN's Ban Urges End to Discrimination Against Ebola Workers

Ban was speaking in Guinea on the second day of a whistle-stop tour aimed at thanking healthcare workers of the countries at the heart of the epidemic More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Decision on Cuba Underscores Divisions Among Miami Cubansi
X
Sharon Behn
December 19, 2014 9:34 PM
For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video US Decision on Cuba Underscores Divisions Among Miami Cubans

For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Cuba Deal is Major Victory for Pope’s Diplomatic Initiatives

Pope Francis played a key role in brokering the US-Cuba deal that was made public earlier this week. It is the most stunning success so far in a series of peacemaking efforts by the pontiff. VOA religion reporter Jerome Socolovsky has more.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.