Long-Term Fiscal Risks and Sustainability in an Oil-Rich Country : The Case of Russia

Russia entered the global crisis with strong fiscal position, low public debt, and large fiscal and monetary reserves, which helped it cushion the crisis shocks. But the rise in the non-oil fiscal deficit in 2007-08 and, more importantly, the massi...

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Bibliographic Details
Main Authors:	Bogetic, Zeljko, Smits, Karlis, Budina, Nina, van Wijnbergen, Sweder
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ALLOCATION ARREARS ASSET POSITION BANK BORROWING BANK EQUITY BANK LENDING BANK LOANS BANK POLICY BANKING CRISIS BANKING SECTOR BANKING SYSTEM BASELINE SCENARIO BASIS POINT BASIS POINTS BOND SPREADS BUDGET BALANCE BUDGET CONSTRAINT BUDGET LAW BUDGET PLANNING CAPITAL ACCOUNT CAPITAL ADEQUACY CAPITAL FLOWS CAPITAL FORMATION CAPITAL GAIN CAPITAL INFLOWS CAPITAL INVESTMENT CAPITAL MARKET CAPITAL OUTFLOW CAPITAL OUTFLOWS CASH SETTLEMENTS CENTRAL BANK COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS CORPORATE BORROWERS COUNTRY RISK CREDIT RISK CREDIT RISKS CREDITOR CURRENCY CURRENCY CRISIS DEBT ACCUMULATION DEBT CRISES DEBT DYNAMICS DEBT LEVELS DEBT OVERHANG DEBT RESTRUCTURING DEBT SERVICING DEBT-SERVICE DEBTOR DEFAULT RISK DEFICITS DEPOSIT DEPOSITS DEVALUATION DOMESTIC DEMAND DOMESTIC GOODS DOMESTIC INTEREST RATES DOMESTIC LIQUIDITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC RECOVERY EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET BOND EXCHANGE RATE EXPENDITURE EXPENDITURE COMMITMENTS EXPENDITURE CONTROL EXPENDITURE LEVEL EXPENDITURE LEVELS EXPENDITURE POLICY EXPENDITURE PROGRAMS EXPENDITURES EXPORT GROWTH EXPORTERS EXTERNAL BORROWING EXTERNAL FINANCING FEDERAL BUDGET FINANCIAL CONDITIONS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL FLOWS FINANCIAL SECTOR FINANCIAL SECTOR INDICATORS FINANCIAL STATEMENTS FINANCIAL SYSTEM FISCAL ADJUSTMENT FISCAL BALANCE FISCAL COST FISCAL DEFICIT FISCAL DEFICITS FISCAL EXPENDITURE FISCAL IMPLICATIONS FISCAL LAXITY FISCAL MANAGEMENT FISCAL POLICY FISCAL POSITION FISCAL PROGRAM FISCAL PRUDENCE FISCAL REFORMS FISCAL REVENUE FISCAL RISK FISCAL RISKS FISCAL RULES FISCAL SAVINGS FISCAL STANCE FISCAL SUSTAINABILITY FIXED CAPITAL FLEXIBLE EXCHANGE RATE FOREIGN BORROWING FOREIGN CURRENCY FOREIGN DEBT FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN EXCHANGE RISK GOVERNMENT DEBT GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT REVENUES GROWTH RATE HIGHER INTEREST HIGHER INTEREST RATES IMPLICIT SUBSIDIES INCOME LEVEL INCOME STREAM INFLATION INFLATIONARY PRESSURES INFRASTRUCTURE DEVELOPMENT INFRASTRUCTURE INVESTMENT INFRASTRUCTURE PROJECTS INTEREST EXPENDITURES INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL TRADE INVESTMENT PROJECTS LABOR MARKET LEVEL OF DEBT LEVEL OF RISK LIQUIDITY RATIO LOAN LOAN PORTFOLIOS MACROECONOMIC INDICATORS MACROECONOMIC MANAGEMENT MACROECONOMIC STABILITY MACROECONOMIC STABILIZATION MARKET ACCESS MARKET ECONOMY MATURITIES MEDIUM-TERM FISCAL FRAMEWORK MINISTRY OF FINANCE MONETARY FUND NEGATIVE REAL INTEREST RATES NET BORROWING NET DEBT NET PRESENT VALUE NET SAVINGS NON-PERFORMING LOANS NONPAYMENT NONPAYMENTS OIL PRICE OIL PRICES OIL RESERVE OIL RESERVES OIL RESOURCES OPERATIONAL DECISIONS PENSIONS PERPETUITY POLICY RESPONSE POVERTY REDUCTION PRICE MOVEMENTS PRICE UNCERTAINTY PRICE VOLATILITY PRIVATE CAPITAL PRIVATE CAPITAL INFLOWS PUBLIC DEBT PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCES PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SPENDING REAL EXCHANGE RATE REAL INTEREST REAL INTEREST RATES RESERVE RESERVE FUND RESERVES RETURN RETURNS RISK ASSESSMENTS SERVICE CHARGES SOCIAL EXPENDITURE SOCIAL PROGRAMS SOCIAL SECURITY SOCIAL SECURITY SYSTEM SOFT BUDGET CONSTRAINTS SOLVENCY SPENDING LEVELS STABILIZATION PROGRAMS STOCKS STRUCTURAL DEVELOPMENT STRUCTURAL REFORMS SUB-NATIONAL GOVERNMENTS SUSTAINABILITY ANALYSIS SUSTAINABLE FISCAL POLICY TAX TAX COLLECTIONS TAX RATE TOTAL EXPENDITURE TRADE BALANCE TRADE CREDITS TRANSPARENCY TREASURY TREASURY MANAGEMENT WORKING CAPITAL
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100317120425 http://hdl.handle.net/10986/3727

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Summary:	Russia entered the global crisis with strong fiscal position, low public debt, and large fiscal and monetary reserves, which helped it cushion the crisis shocks. But the rise in the non-oil fiscal deficit in 2007-08 and, more importantly, the massive impact of the global crisis in late 2008 and 2009 have dramatically altered Russia's medium-term and long-term economic and fiscal outlook. While Russia is emerging from this crisis on a much stronger footing than during the 1998-09 crisis thanks to its strong-pre crisis fundamentals, large fiscal reserves and solid management of the crisis, it will nevertheless need to implement sustained fiscal adjustment in the coming years. Both revenue and expenditure measures will be needed. This will require 2-3 percentage points of GDP in fiscal adjustment for about five years in addition to keeping total expenditure levels at a relatively low 31.5 percent of GDP, consistent with long-term social expenditure needs and requirements of long-term fiscal sustainability. Following a period of adjustment, if Russia would restrain its long-term non-oil deficits to the permanent income (PI) equivalent of its oil revenues as proposed in this paper, its fiscal policy will return to long-term sustainable path. The long-term, sustainable level of non-oil fiscal deficit is estimated at about 4.3 percent of GDP. With the 2009 actual non-oil fiscal deficit of about 14 percent of GDP, this implies significant and sustained fiscal adjustment over the medium term. The expenditure needs of the social security system as well as a reduction in key non-oil taxes represent a major fiscal risk to all scenarios.

Long-Term Fiscal Risks and Sustainability in an Oil-Rich Country : The Case of Russia

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