Capital continues to flow into the country, labor productivity and incomes are growing, and the budget is receiving more money. Russia's main headache is a sharp increase in budget spending. The IMF is not sure that the state is making effective use of its easy oil money.
The IMF mission only spent a week in Russia, but that was enough to evaluate the changes in a country with which it is quite familiar. There is nothing new in its evaluation of the current situation. The Russian budget has been running a surplus for a number of years now. In 2008, the national debt will reach a record low of 8.5% of the GDP. The national economy is growing at 6%-7% a year. The influx of capital into Russia has gone up from $40 billion in 2006 to $41 billion as of the beginning of 2007 (according to the Finance Ministry's estimate). Inflation is going down, while investment in fixed assets is on the up. To sum up, all key indicators look good in the eyes of the IMF's economists.
Some 10 years ago, Russia could only dream about such performance. Production was falling, capital was fleeing the country, and the country was desperate for loans to fix holes in its budget. But it could not get foreign aid without the blessing of international financial organizations. Throughout the 1990s, Russia listened attentively to what the IMF said. Its assessments and reprimands were viewed as divine revelation. Now that it is flush with oil and consumer goods, has a sound budget and a dynamic economy, it no longer needs expert advice from the IMF and takes its positive accounts for granted.
The IMF's forecast for the next few years is as boring as a medical report on a healthy person. "All positive factors which are presently providing growth will remain in effect. We expect crude oil prices to stay high, and the capital influx will also remain strong. We view investor confidence as very strong and labor productivity will continue to improve," said IMF mission head in Russia Paul Thomson. In the next few years, the high influx of capital will not be affected by the forthcoming elections or a change in oil prices; inflation will continue to decrease. According to the IMF's estimate, it will fall within the government's forecasts both for 2007 (8%) and 2008 (6%-7%). The IMF team applauded Russia for the improved quality of its economic growth - it is much better balanced today because it is primarily driven by investment.
Statistically, Russia has long enjoyed a developed market and a sound economy. But these positive processes are accompanied by growing risks that may seriously destabilize the nation's fiscal system, if not plunge it into a crisis. Needless to say, the IMF experts do not expect a financial upheaval of the sort Russia experienced in 1998 (when the government announced a default that devalued the ruble by a factor of four in a matter of weeks). But the Russian economy is not free of problems. In the IMF's opinion, the most worrying is the rapid increase in budget spending.
The government has become particularly lavish in its social spending in 2007, the year before parliamentary and presidential elections will be held. Until now, it could afford such extravagance owing to mounting oil revenues, but in the next few years high oil prices will no longer save it from a budget deficit; and growing imports have been rapidly leading the country towards a negative balance of payments.
The IMF mission voiced its apprehensions on the usefulness of excessive budgetary spending, but this is not the main point. By giving away money for different purposes, the government is not putting aside funds for expensive structural reforms in the future. There is no doubt that it will need investment in the next few years. There are two many large-scale tasks that the current government has left for the future, including modernization of infrastructure, full-scale restructuring of the utilities sector and pension reform. These problems will have to be tackled by the politicians that will come to power in the forthcoming elections. Will they have enough money to solve them? This will depend on whether the current authorities listen to foreign recommendations.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
