Policy Brief: Economic Survey of the Russian Federation, 2009

The global crisis has put a sudden end to the strong recovery of the Russian economy since the financial crisis of 1998. A slowdown was becoming increasingly likely, given the erosion of favourable factors such as undervaluation of the rouble and spare production capacity and labour resources, but the severity of the crisis is a function of overlapping internal and external factors.

The government and central bank responded swiftly to the onset of the crisis, providing liquidity and capital to the banking system and seeking to boost aggregate demand. The government is ready to accept a large fiscal deficit in 2009 and can do so because of accumulated reserves saved in better times. Aggressive fiscal stimulus should aim at maximising the multiplier effect on domestic demand. Such stimulus should be cast in a credible medium‑term framework, to safeguard fiscal sustainability. Monetary policy in the short term should make financial conditions as easy as possible, which means inter alia not resisting fundamental pressures for depreciation of the rouble. Maintaining the functioning of the banking system is of prime importance, but that is consistent with allowing considerable consolidation of the sector.

Looking beyond the crisis, a broad‑based and comprehensive policy package is needed to put in place a more robust growth model. This Survey makes recommendations in four important areas where co‑ordinated reforms promise considerable synergy effects.