IMF official advises Russia to ‘save for rainy day’

Russia should “start saving for a rainy day,” IMF mission chief for Russia Juha Kahkonen said in an interview posted on the IMF website.

Russia’s non-oil budget deficit currently stands at some 6% of GDP, above the level which the Russian government and the IMF see as sustainable.

“And so it’s a need for Russia to start saving for a rainy day,” Kahkonen said.

The IMF official cited forecasts from the organization’s experts, who expect the economic growth to stand at 4.3% this year and 4.1% in 2012, with inflation being above 7% in both years. However, if economic policies are not strengthened, Russia’s growth may drop to below 4% in the midterm.

“These are not the impressive numbers for Russia, because Russia used to have average growth of 7% before the global crisis, and it’s also benefiting from high oil prices,” the IMF mission chief said.

“Russia has great potential, and could have growth of 6% or more on a sustained basis. This would require that economic policies are redirected toward more focus on economic stability and less reliance on oil,” he said.

The official said Russian economy faces two main risks, both external – the Euro area crisis and the global economic slowdown.

“Russia is not very much exposed to the Euro area government debt, but if major European banks get into difficulty, this would create funding problems for Russian banks,” he said. “An even bigger risk is if there is a global downturn and oil prices fall sharply. This would reduce Russia’s exports and budget revenue and trigger a recession.”

He said Russia would need to “decisively” focus its monetary policy on inflation and better oversight of the financial sector. The country also needs a better business climate to speed up growth.

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