The IMF mission that finished its work in Moscow believes that it is possible for Russia to reach an inflation rate of 14 per cent by the end of the year. The mission was set up on the IMF's request and the results of its work were summed up late on Tuesday during a working meeting of the fund's experts with Russian deputy prime minister and finance minister Alexei Kudrin.
According to a source close to the negotiations, the annual inflation rate in Russia after the first six months of this year totals 16 per cent. Taking into account this figure and the forecast development of the monetary and fiscal policy, as well as the measures taken by the Russian government, the IMF experts believe it is possible to achieve an inflation rate of 14 per cent by the end of the year.
Among the positive moves of the Russian government the mission names keeping non-interest budget expenditures at the planned level. However, a substantial rise in salaries reduces possibilities for maneuver and may increase inflation pressure in the future, the experts believe.
The main change in the Russian economy of the last 12 months is the strengthening of capital movement, the IMF says. In particular, the 2nd quarter of the current year witnessed a positive net inflow of private capital. The trend is a result of the moderate tax and budget policy, the mission explains. If the policy is continued in the 2003 budget, it will help to achieve the inflation rate forecast in the budget, according to the fund.
The income part of the 2003 federal budget, based on a predicted average oil price of $21.5 per barrel, somewhat exceeds the prices of the forward markets, the experts believe. According to the current forecast, based on futures contracts, that the IMF takes into account, the price of the Urals brand will not exceed $21 per barrel next year.
For making the Russian budget more reliable the experts think it advisable to consider a possibility of lower oil prices, as the forecast of oil and gas prices remains the source of uncertainty for the world's financiers.
Other factors of uncertainty, taken in the draft 2003 budget, are of minor importance. Yet in their conclusions the fund's analysts point out the direct connection between the government's intention to carry out a strategic policy for decreasing taxes and the necessity to control the growth of non-interest budget expenditures.
During the talks in Moscow, both parties spoke for supporting close dialog between the experts in the time of a high-degree uncertainty in the world economy. The opinion of the fund's experts on developing the tools of the government's monetary and fiscal policy and the analysis of the recent tax reforms remain very important, the Russian party believes.
Besides, the parties discussed a possibility of holding within the set time period a regular IMF mission in compliance with clause 4 of the fund's charter. The clause envisages that an IMF mission works in every IMF member country once a year and prepares a report on the country's economy and financial and credit system.