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Economic Survey of the Russian Federation Seminar hosted by the Higher School of Economics and the Russian Academy of Economy and Civil Service, Moscow 12 December 2011. Geoff Barnard and Tatiana Lysenko Desk Economists, Russia/South Africa Desk Economics Department

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Economic Survey of the Russian Federation Seminar hosted by the Higher School of Economics and the Russian Academy of Economy and Civil Service, Moscow12 December 2011

Geoff Barnard and Tatiana Lysenko

Desk Economists, Russia/South Africa Desk

Economics Department

www.oecd.org/eco/surveys


The context the accession process
The context: the accession process

  • Accession review by the Economic Development and Review Committee (EDRC) in October 2011.

  • Further discussion in EDRC later, when other Committees have completed their reviews.

  • EDRC formal opinion to be sent to OECD Council.

  • Having received formal opinions from all committees, Council takes final decision.


Implications of accession context for survey
Implications of accession context for Survey

  • Broad focus – the EDRC Road Map

    • Ability to resist shocks

    • Structural policy settings promoting rapid convergence in per capita incomes

    • Governance environment suggesting that commitments can be met sustainably

  • 5 chapters: 1 on economic modernisation, 2 on macro policy, 2 on structural policy areas


Modernisation how full is the glass
Modernisation: how full is the glass?

  • To what extent has the Russian economy begun to resemble those of OECD member countries?

  • Are policies in line with best international practice (where that is well defined)?

  • Is the glass getting fuller?


Modernisation how full is the glass1
Modernisation: how full is the glass?

  • In some areas Russian socio-economic outcomes are within the range of OECD countries, though towards the lower end. For example:

    • Income per capita and self-assessed well-being

    • Educational achievement

    • Use of information and communication technology




Modernisation how full is the glass4
Modernisation: how full is the glass?

  • There are some areas of relative strength…

    • Public debt

    • Unemployment

  • …and some notable weak areas

    • Life expectancy

    • Environment


Modernisation how full is the glass5
Modernisation: how full is the glass?

  • Generally policies are moving in the right direction. Many examples, including:

    • Greater emphasis on lifestyle factors for health

    • Improved pay for teachers, judges, civil servants

    • New environmental policy legislation


Modernisation how full is the glass6
Modernisation: how full is the glass?

  • But deficiencies remain in many areas, and some reforms have yet to show concrete actions or measurable results

  • Dangers: “high-tech myopia” and overly state-oriented solutions

  • Broad set of complementary policies needed, and underpinned by better framework conditions for business.

  • The glass is getting fuller, but convergence would be faster with intensified policy efforts.


Chapter 3
Chapter 3

Strengthening the fiscal framework

to enhance resilience to external

shocks and safeguard sustainability





The non oil deficit is excessive
The non-oil deficit is excessive resource wealth

Percentage of GDP


Fiscal rules should be quickly restored
Fiscal rules should be quickly restored resource wealth

  • Institutional constraints can lead to better fiscal outcomes;

    • No one-size-fits-all rule;

    • Checklist: simplicity and transparency, flexibility in face of shocks, stable link between targets and objectives;

    • Non-oil balance target scores well on many dimensions

    • Expenditure rule can usefully complement the non-oil balance target;

    • A well-defined escape clause is important.


December spending peaks fuel inefficiency
December spending peaks fuel inefficiency resource wealth

General government expenditure, each month as percentage of annual total


Recommendations on fiscal policy
Recommendations on fiscal policy resource wealth

● Restore a fiscal rule like the one in the Budget Code.

● Add a rule restricting the annual increase in total expenditure in real terms to some ceiling.

● Develop expertise on the cyclical adjustment of non-oil revenues. Publish more detailed information on the underlying fiscal position, highlighting uncertainties.

● Set up an independent fiscal council.

● Consider including a contingency reserve in the budget.

● Consider transferring privatisation proceeds to the National Welfare Fund.

● Raise pensionable ages.


Chapter 4
Chapter 4 resource wealth

Moving to a new framework

for monetary policy




A new monetary policy framework is evolving
A new resource wealth monetary policy framework is evolving

  • More exchange rate flexibility;

  • Greater emphasis on the CBR’s policy rates;

  • Communication of policy decisions improved;


Further steps toward flexible inflation targeting
Further steps toward (flexible) inflation targeting resource wealth

  • Strengthening institutional arrangements;

  • Monitoring inflation expectations;

  • Coordination with fiscal policy;

  • Raising the effectiveness of interest rate policy;

  • The role of the exchange rate;

  • Dealing with large and volatile capital flows.


Policy transparency lags the oecd average
Policy transparency lags the OECD average resource wealth

*11 OECD banks for which assessment was made


Recommendations on monetary policy
Recommendations on monetary policy resource wealth

Stepping up preparations for inflation targeting

  • Forex intervention should be conducted only if consistent with price stability objective.

  • Designate one or two policy rates as main instrument(s).

  • Consider establishing a Monetary Policy Committee.

    Improving monetary policy transparency

  • Amend CBR Law to spell out price stability as primary objective.

  • Hold press conferences following policy meetings and publish minutes of the meetings and/or voting records.

  • Publish the CBR’s own projections of inflation and output.

  • Publish regular information about inflation expectations, and consider developing a market for inflation-linked bonds.


Recommendations on monetary policy cont
Recommendations on monetary policy (cont.) resource wealth

Dealing with large-scale capital inflows

If inflows lead to excessive pressure for rouble appreciation, consider a range of policy responses:

  • fiscal tightening

  • macro- and micro-prudential measures

  • sterilised interventions

  • temporary market-based disincentives for such inflows.

  • Structural reforms aimed at financial deepening would increase the capacity to absorb large inflows, while product market liberalisation can alter the composition of capital inflows in favour of FDI.


Improving the business climate
Improving the business climate resource wealth

  • International comparisons indicate that the business climate in Russia is poor


Improving the business climate1
Improving the business climate resource wealth

  • The economic consequences are serious

    • Underdeveloped SME sector

    • Low investment

    • Sluggish innovation

    • Slower convergence to OECD living standards

    • Less diversification


Improving the business climate2
Improving the business climate resource wealth

  • The need to improve the business climate is recognised by the authorities, and there have been numerous initiatives and reforms

    • Anti-corruption drive

    • Anti-monopoly “packages”

    • Loosening of strategic sectors rules


Improving the business climate3
Improving the business climate resource wealth

  • But there are few clear signs of improvement


Improving the business climate4
Improving the business climate resource wealth

  • Many specific actions suggest themselves:

    • Accelerate privatisation.

    • Enhance consultation on regulation with affected firms, provide for adequate transition periods, and introduce a “deemed clearance” regime.

    • Eliminate remaining subsidies to large firms put in place during the global crisis

    • Quickly ratify the WTO accession protocol and implement the accession package.

    • Ensure a level playing field between domestic and foreign investors as regards procurement, access to subsidies, law enforcement and dispute resolution.


Improving the business climate5
Improving the business climate resource wealth

  • …but it may be necessary to take a more holistic approach

    • top-down anti-corruption measures more likely to succeed if complemented by reforms favouring political openness, transparency and civil society participation.

    • improve quality and consistency of laws and regulations and reduce their quantity.

    • make public institutions more transparent and accountable, increase media freedom and strengthen enforcement of laws.


Raising energy efficiency
Raising energy efficiency resource wealth

  • Russia has a very energy-intensive economy


Raising energy efficiency1
Raising energy efficiency resource wealth

  • …and this contributes to poor environmental outcomes


Raising energy efficiency2
Raising energy efficiency resource wealth

  • …as well as hindering competitiveness and reducing national income


Raising energy efficiency3
Raising energy efficiency resource wealth

  • There have been important steps taken in recent years…

    • Federal Law No. 261 “On energy saving and improving energy efficiency”

    • Creation of the Russian Energy Agency

    • Energy efficiency listed as the first of five priorities in the work of the Commission on Modernisation and Technological Development of the Economy


Raising energy efficiency4
Raising energy efficiency resource wealth

  • … but one problem is that energy prices in Russia are still too low


Raising energy efficiency5
Raising energy efficiency resource wealth

  • … while final users need to be able to measure and regulate their consumption to a greater degree.


Raising energy efficiency6
Raising energy efficiency resource wealth

  • At least until energy prices equal marginal social costs, other measures could help

    • mandatory fuel efficiency standards, eco-driving programmes, and development of traffic management and road infrastructure.

    • Remove obstacles to the development of energy service companies.

    • Develop instruments to mobilise financing for the renovation of the housing stock and to speed up the rate of renovation.


Concluding remarks
Concluding remarks resource wealth

  • Russia’s weaknesses are interrelated and self-reinforcing

  • But negative feedback mechanisms could be turned around

    • A combination of sound macroeconomic policies, an improved business climate and greater energy efficiency would accelerate modernisation and raise living standards.


Economic survey of the russian federation
Economic Survey of the Russian Federation resource wealth

Thank you for your attention.

www.oecd.org/eco/surveys

[email protected]

[email protected]


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