IMF expects Russian economy to speed up recovery in mid-2021

MOSCOW, Feb 9 (PRIME) -- The International Monetary Fund (IMF) expects recovery of the Russian economy to speed up in the middle of 2021 due to the weakening risks connected to the COVID-19 pandemic, the fund said in a report on Russia published on Tuesday.

The pandemic’s second wave will slow down, the vaccines will appear, and reduction of oil production will shrink gradually under the OPEC+ oil deal. The Russian economy was more resilient in 2020 than the economies of other emerging states, and contracted only by 3.1% in the year.

The fund expects Russia’s gross domestic product (GDP) to rise by 3% in 2021 and by 3.9% in 2022. At the same time, there are significant uncertainties due to the spillover effect of the tough coronavirus restrictions that Russia’s key partners imposed, and geopolitical risks. On the other hand, an efficient vaccine could reduce the risk of a prolonged pandemic, and the effect of trust and delayed demand may lead to a stronger improvement of the economy, the IMF said.

The IMF also suggested that the Russian government gradually switch from the mineral extraction tax (MET) in the oil industry to the added income tax, and reject the reverse excise.

MET contributes consistently to the budget, but cuts incentive for investment. The government introduced the added income tax in 2019, but only to a small number of fields, which it should expand in 2021. The IMF recommends gradual substitution of MET with the added income tax after conclusion of the oil tax maneuver in 2024 to stimulate investment in new technologies.

MET does not take spending of companies into account, which could inhibit investment. The MET pricing formula is also constantly changing, and the tax preferences and exemptions are constantly being introduced for individual projects, which makes the system difficult and unpredictable. If the government copes with a higher administrative burden due to the added income tax, the tax would raise the oil industry’s production ratio and support sustainable development of the sector, the IMF said.

The fund also suggested that the government abolish the reverse excise that subsidizes oil refining and domestic production because it disrupts the tax maneuver.

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