Russia: Will the recent oil bonanza blunt reforms
Overview:
The World Bank notes in its latest Economic Report on Russia that high oil prices have boosted the current account position and could lead to the budget deficit being eliminated as soon as this year. It has also led to a strong rally in the ruble and a sharp rebound in the Russian stock market. Growth was a solid 4.0% in 2010 and is likely to be 4.4% according to the Bank. However, beyond the fairly rosy headline numbers challenges remain. In the short-term inflation is high and rising. In the medium-term the oil bonanza hides what is still a very large non-oil fiscal deficit. Not only, then, is the budget position in particular (and economy more generally) still highly reliant on the oil sector but these windfall revenues may blunt the impetus for economic reforms needed to raise the equilibrium economic growth rate.