The international monetary Fund (IMF) has proposed to the Russian authorities as the state cuts spending by 10% of GDP, writes “Kommersant”, referring to yesterday’s report of the Fund. The decrease in the Fund’s view, is inevitable in the face of continued long period of low oil prices.

Medium-term IMF program for Russia assumes the pension reform implementation (including raising the age of retirement) and cuts in tax credits and subsidies in the energy sector. The newspaper notes that the proposed level of cuts in government spending is close to the estimation of losses of the Russian Federation of the continuation of sanctions in the medium term – up to 9% of GDP.

As the newspaper writes, the IMF report has been prepared following consultations with the economic block of the Russian government and the Central Bank, held in may this year. Then the Fund announced the improved Outlook for the Russian Federation.

Now the Fund is in addition to the forecast presented a list of recommendations, mostly aimed at the adaptation of the economy to low oil prices and sanctions.

Partly the idea of the IMF is working in the government. So prepared by the Ministry of labor, the bill actually increases the retirement age for officials from 60 to 65 years. More extensive measures, however, are discussed with caution. While in preparation of the budget 2016-2018, the Finance Ministry is discussing with the authorities a sample of ten percent of the spending reductions that will not affect social and defense spending.

The main proposals of the Fund is reduced to changing the existing budget rules – with the shift of focus from the validity of deficit (expenses now may be the amount of income increased by 1% of GDP) to achieve budget surplus in the amount of 1-2% of GDP.

If the fiscal rule is not changed, the amount of the Reserve Fund by 2020 will be reduced to 1% of GDP, while the non-oil budget deficit will remain above acceptable according to the Fund level, 7% of GDP vs. 3-4,5%, (last year the figure was 12.6%, this year is projected to 13.3%).

To cut government spending, the IMF recommends primarily due to the pension reform. Increasing the age of retirement can give savings of 2-3% of GDP, limiting early retirement – 0.7% of GDP. On the other hand, indexation of pensions in 2016 by the real inflation this year could lead to increased spending by 1.1% of GDP, according to IMF.

Overall, in the medium term, reducing government spending can be increased to 9.8% of GDP. Of these, 2.7% due to the cuts in tax benefits and higher taxes by an additional 2% – due to the point of rendering social support and 1% – decrease of energosbere, according to the Fund.

IMF advises Russia to cut spending 10% of GDP 05.08.2015

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