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

Photogallery Oxfam: Ebola Could Be 'Disaster of Our Generation'

Meanwhile, Fidel Castro, the former leader of Cuba, says the Caribbean island nation will 'gladly cooperate' with the US in the fight against Ebola in West Africa More

Multimedia Kobani Fighting Sends 400,000 Refugees to Turkey

Refugees receive help from Turkish authorities and individuals, but say much more is needed More

India’s Ruling Nationalist Party Makes Gains in Regional Elections

Bharatiya Janata Party’s huge margin over its rivals puts it on course to form governments in the northern Haryana and western Maharashtra states 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.
Exclusive: American Joins Kurds' Anti-IS Fighti
X
Zana Omer
October 18, 2014 6:37 PM
The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.
Video

Video Syrian Defector Leaks Shocking Photos of Torture Victims

Shocking photographs purporting to show Syrian torture victims are on display at the U.S. Holocaust Memorial Museum in Washington. The museum says the graphic images are among thousands of photographs recently smuggled out of Syria by a military policeman-turned-defector. As VOA reporter Julie Taboh reports, the museum says the photos provide further evidence of atrocities committed by the government of Syrian President Bashar al-Assad against its own people.
Video

Video Drought-Stricken California Considers Upgrading Water System

A three-year drought in California is causing a water shortage that is being felt on farms and cities throughout the state. As VOA's Mike O’Sullivan reports, water experts, consumers and farmers say California needs to make changes to cope with an uncertain future.
Video

Video TechShop Puts High-tech Dreams Within Reach

Square, a business app and card reader, makes it possible to do credit card transactions through cell phones. But what made Square possible? VOA’s Adrianna Zhang and Enming Liu have the answer.
Video

Video Church for Atheists Goes Global

Atheists, by definition, do not believe in God. So they should have no need of a church. But two years ago, a pair of British stand-up comedians decided to create one. Sanderson Jones and Pippa Evans told the BBC they envisioned “something like church but without God". Their “Sunday Assembly” movement has grown from a single congregation in London to dozens of churches around the world. Reporter Mike Osborne visited with the members of a Sunday Assembly that now meets regularly in Nashville.
Video

Video Robot Locates Unexploded Underwater Mines

Many educators believe that hands-on experience is the best way to learn. Proving that the method works is a project developed by a group of students at the Stevens Institute of Technology, in Hoboken, New Jersey. They rose up to a challenge posted by the U.S. Department of Defense and successfully designed and built an underwater robot for locating submerged unexploded ordnance. VOA’s George Putic reports.
Video

Video Liberia's JFK Hospital Reopens After Temporary Ebola Exposure

JFK Hospital is Liberia’s largest and one of its oldest medical facilities. The hospital had to close temporarily following the deaths of two leading doctors from Ebola. It is now getting back on its feet, with the maternity ward being the first section to reopen. Benno Muchler has more for VOA News from Monrovia.
Video

Video Hong Kong Protests Expose Generation Gap

Most of the tens of thousands of protesters in Hong Kong are students seeking democracy. Idealistic youths say while the older generation worries about the present, they are fighting for the territory's future. VOA's Daniel Schearf reports from Hong Kong.
Video

Video Liberians Living in US Struggle From Afar as Ebola Ravages Homeland

More than 8,000 Liberians live in New York City, more than in any other city outside of Liberia itself. As VOA’s Bernard Shusman reports, with the Ebola virus ravaging their homeland, there is no peace of mind for these New Yorkers.
Video

Video Kurds See War-Ravaged Kobani As Political, Emotional Heartland

Intense fighting is continuing between Islamic State militants -- also known as ISIS or ISIL -- and Kurdish forces around the Syrian town of Kobani, on the Turkish border. The U.S. said it carried out at least nine airstrikes against Islamic State positions Friday. Meanwhile the U.N. has warned that hundreds of civilians would be massacred if the town falls to the militants. Henry Ridgwell looks at the strategic significance of the city.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7798
JPY
USD
106.41
GBP
USD
0.6203
CAD
USD
1.1242
INR
USD
61.430

Rates may not be current.