IMF Says Russian Economic Growth Model Exhausted

(RIA Novosti – MOSCOW, October 9, 2013) The International Monetary Fund warned in a report published Wednesday that Russia’s economic model has exhausted itself and predicted that future growth will be constrained by negative demographic trends.

The IMF’s annual World Economic Outlook said that the Russian economy has managed to grow on the back of rising oil prices and by using up spare capacity, but that this formula will no longer work.

Growth prospects in Russia, the IMF said, “have been dampened by a weak external environment, some acceleration of capital outflows and declining equity prices and subdued investment.”

The IMF also warned that demographic changes are likely to cap future economic potential. Russia’s dependent population is growing, and the working-age population is expected to shrink by one million people every year through 2017, according to the World Bank.

Problems that Russia could afford to ignore will now come to the fore, the IMF suggested. These include “inadequate physical infrastructure, including the transportation and electricity networks; overreliance on commodities; and a weak business climate,” the Fund said.

The government predicts that the Russian economy will grow 1.8 percent this year, the lowest rate since the 2009 financial crisis. Growth in Russia in 2012 fell to 3.4 percent from 4.3 percent a year earlier.

The IMF is more pessimistic in its growth forecasts than Moscow. It predicts in its report that growth in Russia will be 1.5 percent in 2013, down from the 2.5 percent forecast in July.

Kremlin critics say the government is unprepared to undertake the structural reforms that could increase investment and unlock higher economic growth rates.

Former Finance Minister Alexei Kudrin warned in an interview Wednesday that Russia is a hair’s breadth away from recession.

“Negative growth is already a crisis,” he told Novaya Gazeta newspaper. “If some sort of world platform provokes a deterioration in international competitiveness, it could lead to a negative growth rate.”

President Vladimir Putin, whose government has been forced to make cuts to its 2014 budget because of the worsening economic situation, has promised huge state investment in infrastructure and urged an increase in productivity in an attempt to boost growth.