Briefing Notes for the Launch in Moscow, March 2009
Growth performance and medium-term prospects
- The GDP of the Russian Federation increased by 5.6% in 2008, owing to robust
growth in retail sales and investment in fixed assets. Retail turnover and investment in
fixed capital grew by 13.0% and 9.1%, respectively, through 2008. The industrial
sector, benefitting from expansion in manufacturing, grew by 2.1% over the same
period. Agricultural production rose by 10.8% in 2008. The grain harvest was expected
to be 108 million tons for 2008, exceeding the 2007 harvest by more than 25 million
tons and permitting exports of grain to neighbouring countries. The country remained
the second-largest oil producer in the world in 2008. Despite the sharp decline in oil
prices, the hydrocarbon sector continued to play a key role in economic development.
- Domestic demand and increased oil and gas production will enable the Russian
Federation to continue its expansion in 2009-2011, but GDP growth rate is expected to
slow to 3.5% in 2009, compared with the 5.6% expected in 2008. Inflationary
pressures could accelerate from an increase in fiscal expenditure, greater foreignexchange
inflows and domestic demand.
Fiscal policy developments
- The budget of the Russian Federation, which has recorded a surplus for the last eight
years, was expected to have a surplus of 5.5% of GDP, compared with 5.4% in 2007.
Because oil and gas exports are expected to comprise one third of budget revenue in
2009, the Government took steps in 2008 to diversify the economy and reduce
dependence on hydrocarbons. It diverted more oil revenues into the Stabilization Fund,
which for years has been absorbing windfall taxes from energy exports to help control
inflation. The three-year budget approved by the country’s parliament in November
2008 envisaged budget targets for 2009-2011 that take into account a high inflation
rate and falling oil prices. The budget surplus is expected to decline to 3.6% of GDP in
2009 and to 2.8% of GDP in 2010. Government expenditures are planned to rise by
about 20% in 2009 and by 14% in 2010.
- High oil prices, capital inflows and the effects of an earlier fiscal relaxation fed
inflationary pressures in the Russian Federation. The Government raised its 2008
inflation projection from 7.5-8.5% to 14%, which would be the highest since 2002.
Consumer price inflation was 14.1% in 2008. Food prices, one of the main drivers of
consumer price inflation, were expected to moderate by the end of the year as a result
of stabilized global food prices and a record grain harvest. The surge in inflation
caused the continued appreciation of the ruble in real effective terms—in the first 10
months of 2008, the ruble became 4.7% stronger against the United States dollar. But
in November 2008, it fell by 1% against the combined dollar/euro basket of currencies after the Central Bank of the Russian Federation reduced the floor at which it would
defend its national currency.
Current account and trade performance
- A foreign trade surplus was expected to cause the current account surplus of the
Russian Federation to grow from 5.9% of GDP in 2007 to 6.0% in 2008. Exports grew
by 52.5%, and imports rose by 47.6% in the first nine months of 2008. The trade
surplus increased from $106 billion in the first nine months of 2007 to $169 billion in
the same period of 2008. Hydrocarbon exports accounted for about 70% of the total
export earnings in the first nine months of 2008. Machinery and equipment for new
construction projects and consumer goods were the largest imports.
- In November 2008, the Government announced a $20 billion package of fiscal stimulus
that includes cuts in corporate tax and regional tax by 4 percentage points, and tax on
business income from 15% to 5%. The Government will also support the real economy
through faster amortization schedules, Government guaranties, restructuring of debts,
excise policy and tariffs. It will continue to implement tax reforms by lowering the VAT
and reducing the tax burden on small businesses to help businesses withstand the
current economic crisis. The Government is also expected to continue to develop
sectors of strategic importance, such as oil and gas industries, grain exports,
engineering and metals, and banking.