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

33 Pages Posted: 20 Apr 2016

See all articles by Zeljko Bogetic

Zeljko Bogetic

World Bank

Karlis Smits

Queen's University

Nina Budina

World Bank

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: March 1, 2010

Abstract

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.

Keywords: Debt Markets, Public Sector Expenditure Policy, Environmental Economics & Policies, Economic Stabilization, Currencies and Exchange Rates

Suggested Citation

Bogetic, Zeljko and Smits, Karlis and Budina, Nina and van Wijnbergen, Sweder, Long-Term Fiscal Risks and Sustainability in an Oil-Rich Country: The Case of Russia (March 1, 2010). World Bank Policy Research Working Paper No. 5240. Available at SSRN: https://ssrn.com/abstract=1574737

Zeljko Bogetic (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Karlis Smits

Queen's University ( email )

Kingston, Ontario K7L 3N6
Canada

Nina Budina

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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