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

    Former US Envoys Urge Obama to Delay Troop Cuts in Afghanistan

    Keeping troop levels up during conflict with both Taliban and Islamic State is necessary to support Kabul government, they say

    First Lady to Visit Africa to Promote Girls' Education

    Michele Obama will be joined by daughters and actresses Meryl Streep and Freida Pinto

    Video NYSE Analyst: Brexit Will Continue to Place Pressure on Markets

    Despite orderly pricing and execution strategy at the New York Stock Exchange, analyst explains added pressure on world financial markets is likely

    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.
    Brexit Vote Plunges Global Markets Into Uncharted Territoryi
    X
    June 24, 2016 9:38 PM
    British voters plunged global markets into unknown territory after they voted Thursday to leave the European Union. The results of the Brexit vote, the term coined to describe the referendum, caught many off guard. Analysts say the resulting volatility could last for weeks, perhaps longer. Mil Arcega reports.
    Video

    Video Brexit Vote Plunges Global Markets Into Uncharted Territory

    British voters plunged global markets into unknown territory after they voted Thursday to leave the European Union. The results of the Brexit vote, the term coined to describe the referendum, caught many off guard. Analysts say the resulting volatility could last for weeks, perhaps longer. Mil Arcega reports.
    Video

    Video Orlando Shooting Changes Debate on Gun Control

    It’s been nearly two weeks since the largest mass shooting ever in the United States. Despite public calls for tighter gun control laws, Congress is at an impasse. Democratic lawmakers resorted to a 1960s civil rights tactic to portray their frustration. VOA’s Carolyn Presutti explains how the Orlando, Florida shooting is changing the debate.
    Video

    Video Tunisian Fishing Town Searches for Jobs, Local Development Solutions

    As the European Union tries to come to grips with its migrant crisis, some newcomers are leaving voluntarily. But those returning to their home countries face an uncertain future.  Five years after Tunisia's revolution, the tiny North African country is struggling with unrest, soaring unemployment and plummeting growth. From the southern Tunisian fishing town of Zarzis, Lisa Bryant takes a look for VOA at a search for local solutions.
    Video

    Video 'American Troops' in Russia Despite Tensions

    Historic battle re-enactment is a niche hobby with a fair number of adherents in Russia where past military victories are played-up by the Kremlin as a show of national strength. But, one group of World War II re-enactors in Moscow has the rare distinction of choosing to play western ally troops. VOA's Daniel Schearf explains.
    Video

    Video Experts: Very Few Killed in US Gun Violence Are Victims of Mass Shootings

    The deadly shooting at a Florida nightclub has reignited the debate in the U.S. over gun control. Although Congress doesn't provide government health agencies funds to study gun violence, public health experts say private research has helped them learn some things about the issue. VOA's Carol Pearson reports.
    Video

    Video Trump Unleashes Broadside Against Clinton to Try to Ease GOP Doubts

    Recent public opinion polls show Republican Donald Trump slipping behind Democrat Hillary Clinton in the presidential election matchup for November. Trump trails her both in fundraising and campaign organization, but he's intensifying his attacks on the former secretary of state. VOA National Correspondent Jim Malone reports.
    Video

    Video Muslim American Mayor Calls for Tolerance

    Syrian-born Mohamed Khairullah describes himself as "an American mayor who happens to be Muslim." As the three-term mayor of Prospect Park, New Jersey, he believes his town of 6,000 is an example of how ethnicity and religious beliefs should not determine a community's leadership. Ramon Taylor has this report from Prospect Park.
    Video

    Video Internal Rifts Over Syria Policy Could Be Headache for Next US President

    With the Obama administration showing little outward enthusiasm for adopting a more robust Syria policy, there is a strong likelihood that the internal discontent expressed by State Department employees will roll over to the next administration. VOA State Department correspondent Pam Dockins reports.
    Video

    Video Senegal to Park Colorful ‘Cars Rapide’ Permanently

    Brightly painted cars rapide are a hallmark of Dakar, offering residents a cheap way to get around the capital city since 1976. But the privately owned minibuses are scheduled to be parked for good in late 2018, as Ricci Shryock reports for VOA.
    Video

    Video Florida Gets $1 Million in Emergency Government Funding for Orlando

    The U.S. government has granted $1 million in emergency funding to the state of Florida to cover the costs linked to the June 12 massacre in Orlando. U.S. Attorney General Loretta Lynch announced the grant Tuesday in Orlando, where she met with survivors of the shooting attack that killed 49 people. Zlatica Hoke reports.
    Video

    Video How to Print Impossible Shapes with Metal

    3-D printing with metals is rapidly becoming more advanced. As printers become more affordable, the industry is partnering with universities to refine processes for manufacturing previously impossible things. A new 3-D printing lab aims to bring the new technology closer to everyday use. VOA's George Putic reports.
    Video

    Video Big Somali Community in Minnesota Observes Muslim Religious Feast

    Ramadan is widely observed in the north central US state of Minnesota, which a large Muslim community calls home. VOA Somali service reporter Mohmud Masadde files this report from Minneapolis, the state's biggest city.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9036
    JPY
    USD
    102.32
    GBP
    USD
    0.7297
    CAD
    USD
    1.3005
    INR
    USD
    68.004

    Rates may not be current.