IMF suggests Russia tighten fiscal rule in long term
MOSCOW. April 30 (Interfax) - The International Monetary Fund (IMF) suggests Russia keeps its fiscal rule and tightens it in the long term.
This mainly because the non-oil deficit was a high 10.4% last year, which makes Russia vulnerable to possible changes in the price of oil, Antonio Spilimbergo, head of the IMF mission in Russia, told a press conference at the Interfax head office.
He said the Russian authorities had decided to retain and abide by the fiscal rule, which the IMF welcomes.
The IMF recommends tightening the rule as conditions improve in order to lower the non-oil deficit. Some fiscal consolidation will take place this year as the result of observing the fiscal rule, Spilimbergo said.
Even so, it will take some important steps for that consolidation to continue. As noted in previous years, the key issue here is reforming the pension system. The pension reforms that have already taken place are the first step, but increasing the retirement age is key, Spilimbergo said.
A statement following an IMF mission visit to Russia says that the non-oil budget surplus is expected to improve by 0.7% of GDP in 2014 due to a reduction in VAT deductions thanks to the completion of major infrastructure projects and also because of the fiscal rule.
Despite a slowdown in economic growth, there are grounds for moderate fiscal tightening because production volumes remain close to the potentially possible level. Compliance with the fiscal rule is crucial for ensuring confidence in it, given the current volatility and the need for fiscal consolidation in the mid-term. However, considering the limited size of the automatic stabilizers, if there is a more serious and long-term economic slump, temporary and targeted discretionary fiscal rule measures can be applied, the statement says.
To maintain investment opportunities in the budget, Russia needs to resist growing pressure to increase spending, the IMF said. Promised further spending hikes on defense and salaries, encouraged by the geopolitical tension of increased budget commitments, along with incomplete pension reforms could have a negative impact on budgets in later years, the statement said.
These spending items may squash necessary government investment and slow down the process of budget consolidation. A weakening of fiscal policies to fulfill 2012 election promises amid weak tax revenue is a particularly sensitive issue for sub-federal authorities, the IMF said.