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Russian Federation: Staff Report for the 2011 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund
Published Date:
September 2011
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ANNEX I. RUSSIAN FEDERATION: FUND RELATIONS

(As of July 28, 2011

Membership Status

Joined 06/01/1992; Article VIII.

General Resources Account

SDR MillionPercent Quota
Quota5,945.40100.00
Fund holdings of
currency4,390.2473.84
Reserve position in
Fund1,559.1926.16

SDR Department

SDRPercent
MillionAllocation
Net cumulative
allocation5,671.80100.00
Holdings5,679.83100.14

Outstanding Purchases and Loans

None

Latest Financial Arrangements

In millions of SDR, (mm/dd/yyyy)

TypeApproval

Date
Expiration

Date
Amount

Approved
Amount

Drawn
Stand-by07/28/9912/27/003,300.00471.43
EFF03/26/9603/26/996,305.571,443.45
Of which
SRF07/20/9803/26/993,992.47675.02
EFF03/26/9603/26/996,901.004,336.26

Projected Payments to Fund

(SDR million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20112012201320142015
Principal
Charges/interest0.080.080.080.080.08
Total0.080.080.080.080.08

Implementation of HIPC Initiative:

Not Applicable

Implementation of MDRI Assistance:

Not Applicable

Exchange Arrangements:

The de jure arrangement is other managed arrangement—namely, a controlled floating exchange rate arrangement. The ruble value of a bi-currency basket is used as the operating benchmark for transactions on the internal currency market. The basket is currently composed of €0.45 and $0.55. The target boundaries of its permissible fluctuations were revised based on changes in fundamental factors governing formation of the country’s balance of payments in accordance with the Uniform State Monetary Policy Guidelines for 2008, in response to a gradual transition to a more flexible exchange-rate-setting policy. The value of the bi-currency basket is determined under the influence of both market factors and exchange interventions by the Central Bank of Russia (CBR). The interventions take place both in interbank currency exchanges and on the over-the-counter interbank market to limit daily fluctuations. Effective October 13, 2010, the CBR has eliminated the fixed trading band of Rub 26–41 against the bi-currency basket, in force since January 2009. The CBR has also widened the moving intervention band from 3 to 5 rubles in two installments, with the size of the maximum intervention amount within the band reduced from $700 million to $600 million. The permissible fluctuations may be revised in response to changes in macroeconomic indicators. Owing to the continued control of the CBR over the exchange rate determination, the de facto exchange rate arrangement is other managed arrangement. The Russian Federation accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement with effect from June 1, 1996, and maintains an exchange system free of restrictions on the making of payments and transfers for currents international transactions.

Article IV Consultation:

Russia is on the standard 12-month consultation cycle. The last consultation was concluded on July 23, 2010.

FSAP Participation and ROSCs

Russia participated in the Financial Sector Assessment Program during 2002, and the FSSA report was discussed by the Board in May 2003, at the time of the 2003 Article IV discussion (IMF Country Report No. 03/147). An FSAP update took place in the fall of 2007, and the FSSA report was discussed by the Board in August 2008, at the time of the 2008 Article IV discussion. An FSAP financial stability assessment took place during April 2011.

A Fiscal Transparency ROSC mission, headed by Peter Heller (FAD), visited Moscow in July 2003, and a Data ROSC module was undertaken by a mission in October 2003, led by Armida San Jose (STA). A mission led by Ms. San Jose undertook a reassessment of Data ROSC module in July 2010.

Resident Representatives:

Mr. Odd Per Brekk, Senior Resident Representative, since March 1, 2009.

ANNEX II. RUSSIAN FEDERATION: WORLD BANK-IMF COLLABORATION

1. The Fund Russia team led by Ms. Zakharova (deputy mission chief) met with the World Bank Russia economic policy team led by Mr. Bogetic (lead economist and country sector coordinator for poverty reduction and economic management) on May 4, 2011 to discuss and reconfirm macrocritical structural reforms and coordination of the two teams’ work for the period September 2010-March 2012. The teams had previously met on September 7, 2010 to discuss/set the team’s work program for the period September 2010-August 2011.

2. The teams agreed that Russia’s main macroeconomic challenges are to raise growth prospects and strengthen the banking system. A timely exit from the crisis-related stimulus and reinvigoration of structural reforms will be needed to meet these challenges.

3. Based on this shared assessment, the teams identified five reform areas as macrocritical:

  • Strengthening the fiscal framework: Key elements of reform include: (i) focusing on the nonoil balance as the anchor for fiscal policy, (ii) using a Permanent Oil Income Model (POIM) rule to ensure long-term fiscal sustainability; (iii) avoiding excessive use of supplemental budgets; and (iv) replenishing the Reserve Fund (designed as a “rainy day” fund). These reforms are macrocritical as they will help to reduce fiscal (and economic) vulnerabilities, and increase the credibility of fiscal policy, which would support stronger growth.
  • Public expenditure reforms: Key elements of reform include: (i) promoting aggregate fiscal discipline and strengthening public expenditure efficiency and management; (ii) strengthening capital budgeting in the road and rail sectors; and (iii) improving the efficiency of public employment. These reforms are macrocritical as they will help to identify savings to support fiscal consolidation and reduce fiscal vulnerabilities.
  • Reforming the pension system: Key objectives of reform include bringing down long-run fiscal costs and providing reasonable pension benefits to all pensioners current and future. These reforms are macrocritical as they will help to reduce fiscal vulnerabilities.
  • Strengthening the monetary policy framework: Key elements of reform include (i) streamlining the set of policy instruments; (ii) draining excess liquidity; and (iii) a gradual narrowing of the policy corridor. These reforms are macrocritical as they will help to improve the effectiveness of the monetary policy efforts to control inflation, which is key for macroeconomic stability and growth.
  • Financial sector stability module assessment and financial sector development: The banking sector is stable but regulatory and supervisory deficiencies need to be addressed, specifically: (i) prompt adoption of pending legislation on consolidated supervision and connected lending; (ii) granting an appropriate degree of supervisory discretion to the CBR; (iii) closer supervision of systemically important banks to contain moral hazard and improve systemic risk monitoring. These reforms are macrocritical as financial sector stability is key for effective intermediation of savings to promote investment and growth.

4. The teams agreed the following division of labor:

  • Strengthening the fiscal framework: The Fund has elaborated reform options and discussed them with the authorities during the 2011 Article IV consultation. The Bank is preparing a new lending project for FY13 to strengthen the fiscal regime to encourage business investment, streamline the intergovernmental fiscal system, and increase oversight of financial risks through policy advice and capacity building in the Ministry of Finance and the Federal Tax Service. The Bank is also monitoring fiscal developments, reforms and policies as part of its regular Russian Economic Reports covering macroeconomic and structural issues. In addition, the Bank is providing technical assistance on program budgeting and public expenditure efficiency.
  • Public expenditure reforms: The Bank has elaborated reform options in its Public Expenditure Review, which were discussed with the authorities and published in June 2011. The Bank will further explore cooperation with the authorities in the areas of improving the business environment and public administration reform, including in the regions.
  • Reforming the pension system: The Fund plans to elaborate reform options, present them at a high-level conference in Moscow in January 2012 which will include representatives from the government, academia, private sector, and civil society, and discuss these options in the context of the 2012 Article IV consultation. The Fund will also assess the reform proposals of the Working Group on Pensions that the authorities have instituted as part of their Strategy 2020 and which will present its report by end-2011. The Bank has completed several recent studies that relate to the pension system, including a study of long-term fiscal risks and a recent paper on the second, private pillar. The Bank team has shared these studies and is ready to coordinate with the Fund team, as needed.
  • Strengthening the monetary policy framework: The Fund has elaborated reform options and discussed them with the authorities during the 2011 Article IV consultation.
  • Financial sector stability module assessment and financial sector development: The Fund conducted the assessment in March/April 2011 and discussed reform options with the authorities, along with participation of Bank staff. The Bank has appointed a new private sector/financial sector coordinator for Russia, who is stationed in Moscow to coordinate the work on longer-term developmental issues in the private/financial sector. The Bank is also preparing a new lending project to (a) achieve an orderly financial market expansion and development of domestic capital markets to better serve the needs for corporate finance, (b) enhance financial market stability through a modernized state-of-the-art regulatory framework and the implementation of robust supervisory and enforcement mechanisms, and (c) reach global best practice standards in the market infrastructure and regulation, in order to achieve a broader international reach as a centre of finance.

5. The teams have the following requests for information from their counterparts:

  • The Fund team requests to be kept informed of progress in the macrocritical reform areas under the Bank’s purview.
  • The Bank team requested that the Fund share on a regular basis with WB and invite, as needed, Bank’s comments on policy notes, draft staff reports, and other relevant materials; and that Bank staff be invited to attend policy meetings, as has already been the case with the 2011 Article Consultation. Timing: in the context of the Article IV and other missions (and at least semi-annually).

6. The table below lists the teams’ separate and joint work programs during September 2010-March 2012.

TitleProductsProvisional

timing of

missions
Expected

delivery

date
A. Mutual information on relevant work programs
1. Bank work programCountry Partnership StrategyPreparatory work is ongoingBoard discussion expected Nov. 2011
Russian Economic Reports (RER)OngoingSeptember 2011,

March 2012
Public Expenditure ReviewOngoingJune 2011
Russia: Reshaping Economic GeographyOngoingJuly 2011
Other analytical work on export diversification, growth and jobs, and inequality and economic opportunities, financial sector analysis (pensions, banking, capital markets, and insurance) and technical assistance on diversification and innovation, customs, tax administration and judicial reform.Ongoingn.a.
Russia energy efficiency projectOngoingBoard discussion expected March 2012
Financial Intermediary Loan (FIL)OngoingBoard discussion expected March 2012
Financial Sector Development ProjectOngoingBoard discussion expected Feb. 2012
Fiscal and Financial DevelopmentOngoingBoard discussion expected Dec. 2012
2. Fund work program2010 staff visitDecembern.a.
FSAP stability module updateMarch/AprilSeptember 2011
2011 Article IV missionJune 2011September 2011
Presentation of pension fund paper at Gaidar Forum conferenceJanuary 2012
3. Joint products in next 12 monthsNo joint products planned at this time
ANNEX III. RUSSIAN FEDERATION: STATISTICAL ISSUES

A. Assessment of Data Adequacy for Surveillance

General: Data provision is broadly adequate for surveillance. However, in the context of emerging data demands for assessing external vulnerabilities, the scope for further data improvements exists.

Russia is an SDDS subscriber, has a range of statistical dissemination formats, and reports data for the Fund’s statistical publications. These sources inform surveillance.

National Accounts: Data are broadly adequate for surveillance, but there have been concerns about the reliability and consistency of quarterly GDP estimates among a wide range of users, including Fund staff. This may point inter alia to lags in the revision schedule of the various data formats. The Federal State Statistics Service (Rosstat) started a national accounts development plan for 2011–17, which will expedite compilation of quarterly GDP estimates consistent with annual GDP estimate. The introduction of methodological changes in the compilation of important indicators without releasing backward revisions of the series on a timely basis also impaired economic analysis. However, a historical revision of the industrial production index was released in July 2010. Consistent with the new series, a historical revision of the annual and quarterly GDP series, incorporating the results of the 2006 agriculture census as well as methodological improvements, was made in the third quarter of 2010.

The Rosstat in general follows the 1993 SNA, although scope exists for methodological improvements in the calculations of volume measures of the production-based GDP estimates, including estimates of the output of financial intermediation services indirectly measured (FISIM). The imputed rental services of owner-occupied dwellings are undervalued. Improvements in the coverage of source data are constrained by an inadequate response to business surveys. The unavailability of balance sheet data continues to be an obstacle for analyzing balance sheet vulnerabilities.

Price statistics: Data are broadly adequate for surveillance, but time series analyses involving detailed CPI components are a challenge to perform because of limited time series data on CPI weights. Monthly CPI and PPI, both compiled using the Two-State (Modified) Laspeyres (2000=100), cover all regions of the Russian Federation. In addition to the general CPI index, Rosstat also publishes indices for foodstuffs, non-food products, and services. Since September 2010, the Rosstat has also published price indices broken down according to the Classification of Individual Consumption According to Purpose (COICOP) on a monthly basis. Detailed CPI weight data have been made available in the publication Prices in Russia beginning in 1995 and on the Rosstat website beginning in 2006. Since 2009, detailed consumer expenditure data, used as the basis to develop the CPI weights, are posted on Rosstat’s website annually. Earlier data on detailed household expenditures have been published in the following publications: Prices in Russia 2004 and Prices in Russia 2006. Detailed PPI weight data are published on the Rosstat website for 2006–2011; and detailed data on total annual sales, which are used to develop weights for the PPI, are also published by economic activity on the website under the Entrepreneurship section, industrial subsection. However, the detailed weights are available only on the Russian version of the website, making it less accessible by users. Further efforts to improve the treatment of seasonal items in the core inflation index and a new household budget survey—which has been under consideration for some time—could significantly strengthen data quality.

Government finance statistics: For surveillance purposes, the timeliness and level of detail of the data disseminated can be improved. Since July 2010, data on the economic classification of expenditures are published on a monthly basis with a lag of about 1½ months, but problems with consistent historical data still remain. The data on functional classification of expenditure and financing differ from international standards. Historical data on the maturity structure of domestic and external federal debt are not published, except the most recent observation available through SDDS. Monthly data on the size and composition of ruble guarantees are not available prior to 2011. Historical monthly data on foreign currency debt are not available prior to 2009, though quarterly data are available since 2006. In addition, there is no integrated debt monitoring and reporting system. Reconciliation of different datasets of fiscal statistics (budget execution, cash flow statement, GFSM 2001 format, SDDS) is difficult. The website where fiscal statistics are disseminated can be made more user friendly by consolidating all statistical links in a dedicated data dissemination page, available both in Russian and in English, and supplementing the data with relevant definitions, description of compilation methodology, and relevant analytical materials. The authorities are working to address the recommendations of the 2010 ROSC Data Module Update.

Monetary statistics: Since July 2008, the Central Bank of Russia (CBR) provides to the IMF, in the MFSM-recommended format for the surveys, summarized data on (i) the Central Bank Survey, (ii) the Other Depository Corporations Survey, (iii) the Depository Corporations Survey, (iv) the Other Financial Corporation Survey (data cover insurance companies and private pension funds), and (v) the Financial Corporations Survey (data cover the banking system, insurance companies, and private pension funds). In the context of the recent financial crisis, analysis of balance sheet effects has been hindered by a lack of comparable data on the currency and maturity breakdown of banking-sector assets and liabilities. Adoption of data reporting in full detail of the framework for Standardized Report Forms (SRFs), as recommended by an STA mission in 2007, would provide information on the currency and instrument breakdowns of the banking sector assets and liabilities. Starting in July 2010, the CBR includes in the Surveys the breakdown of positions by currency.

External sector statistics: While balance of payments data are broadly adequate for surveillance, and significant improvements have been made to enhance data quality, there remains scope for improving the coverage of certain components of the current, capital, and financial accounts. Improving the detail of supplemental data on the financial account would facilitate the analysis of relatively complex flows. The balance of payments is compiled according to the framework of the Fund’s Balance of Payments Manual, fifth edition (BPM5) and the CBR is actively implementing the recommendations of the BPM6. Partial data from a variety of sources are supplemented by the use of estimates and adjustments to improve data coverage. In particular, the CBR makes adjustments to merchandise import data published by the Federal Customs Service to account for “shuttle trade,” smuggling, and undervaluation. Statistical techniques are also used to estimate transactions and positions of foreign-owned enterprises with production sharing agreements, and these techniques are continuously being improved. At the same time, Russian compilers are seeking to reconcile their data with those of partner countries. Improvements have been made in the coverage and quality of surveys on direct investment, and the CBR is participating in the Fund’s Coordinated Direct Investment Survey.

Headline data on reserves are reported to the Fund and the markets on a weekly basis with a four-business-day lag. Comprehensive information is reported in the Reserves Template with a lag of 20 days, exceeding SDDS timeliness requirement of one month.

B. Data Standards and Quality

Subscriber to the Special Data Dissemination Standard (SDDS) since January 31, 2005. SDDS flexibility option used for the timeliness of data on central government operations. A data ROSC prepared in October 2003 was published on the IMF website on May 14, 2004. A data ROSC reassessment in June-July 2010 was published on the IMF website on February 28, 2011 and concluded that Russia’s macroeconomic statistics are generally of high quality. It found that compiling agencies have made significant progress in adopting international statistical methodologies and best practices.

C. Reporting to STA (Optional)

Data are being reported for publication in the International Financial Statistics (IFS), Government Finance Statistics Yearbook, the Direction of Trade Statistics, and the Balance of Payments Statistics Yearbook. Monetary data reported as the basis for publication in IFS are in the format of summarized surveys rather than in the full detail of the SRFs that present positions by financial instrument disaggregated by currency (national and foreign) and the economic sector of counterparty.

RUSSIAN FEDERATION: TABLE OF COMMON INDICATORS REQUIRED FOR SURVEILLANCE(As of June 30, 2011)
Date of

latest

observation
Date

received
Frequency

of data8
Frequency

of reporting8
Frequency of

publication8
Memo Items:
Data Quality–

Methodological

soundness9
Data Quality

Accuracy and

reliability10
Exchange Rates6/30/116/30/11DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities16/1/20116/6/11MMM
Reserve/Base Money (narrow definition)6/20/116/24/11DWWO, O, LO, LOO, O, O, O, O
Reserve/Base Money (broad definition)6/1/20116/14/11DMMO, O, LO, LOO, O, O, O, O
Broad Money6/1/20116/27/11MMMO, O, LO, LOO, O, O, O, O
Central Bank Balance Sheet26/1/20116/14/11MMMO, O, LO, LOO, O, O, O, O
Consolidated Balance Sheet of the Banking System6/1/20116/30/11MMMO, O, LO, LOO, O, O, O, O
Interest Rates36/30/116/30/11D/W/MD/W/MD/W/M
Consumer Price IndexMay 20116/6/11MMMO, LO, LNO, OO, O, O, O, O
Revenue, Expenditure, Balance and Composition of Financing4–General Government5April, 20116/7/11MMMLO, LNO, LO, OO, O, LO, O, O
Revenue, Expenditure, Balance and Composition of Financing4–Central GovernmentMay, 20116/10/11MMM
Stocks of Central Government and Central Government–Guaranteed Debt66/1/20116/27/11MMM
External Current Account Balance7Q1 20114/5/11QQQO, O, O, LOLO, O, O, O, O
Exports and Imports of Goods and ServicesQ1 20114/5/11QQQ
GDP/GNPQ1 20115/16/11QQQO, LO, O, OO, O, LO, O, LO
Gross External DebtQ1 20116/30/11QQQ
International Investment Position20106/30/11AAA

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Ratings refer to Central Bank Survey.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Ratings refer to Balance of Payments.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC (reassessment) published on February 28, 2011, and based on the findings of the mission that took place during June 23-July 7, 2010 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 9, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Ratings refer to Central Bank Survey.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Ratings refer to Balance of Payments.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC (reassessment) published on February 28, 2011, and based on the findings of the mission that took place during June 23-July 7, 2010 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 9, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies

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