Russia’s economy doomed unless measures taken – think-tank

A government think-tank warns that Russia’s current economic development strategy needs radical revision to avoid disaster.

It has published the policy changes it thinks are needed, and the government is due to consider them in August.

If the strategy is not altered, they warn, the country’s economy will either fade out or have too many bubbles that will inflate and then burst.

The economists say that Russia’s economy was grew dramatically from 1999 to 2008 thanks to capital inflow and market growth. These sunny days are drawing to a close – thanks to the global financial crisis – so growth will inevitably slow down.

If the government tries to accelerate the economy by boosting consumer spending and giving credit, the country is likely to end up in a credit hole (around 16 per cent of GDP) by the end of the decade.

Russia’s main problems are the closed model of the economy, the lack of direct and long-term investments, and the lack of competition on the domestic market, the latter issue being the central one.

Another serious challenge is the declining population.

“According to the World Health Organization, without more migrants, the work force in Russia will decrease by 1 per cent every year,” Polina Badasen, an economist from the FC Otkritie, told RT. “That is very detrimental to the economy. Basically, it’s impossible to support continued growth without new inflows of migrants.”

In order to tackle those issues, the experts advise shifting attention to external demand, anti-inflation measures, market-based allocation of resources, high interest on savings (20 to 25 per cent of GDP) and macroeconomic stability.

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