IMF plan to visit Russia to assess economy prompts dismay across Europe

The International Monetary Fund (IMF) will send staff to Moscow next week to review the Russian economy for the first time since the invasion of Ukraine, in a move that has prompted anger and dismay across European capitals.

Officials of the Washington-based organisation will travel to the Russian capital and meet “stakeholders” before publishing an assessment of the economy and providing recommendations about how the Kremlin might improve its economic handling and tackle issues such as the climate crisis.

The IMF said it was a “mutual obligation” to carry out an article IV review of a member country and the process was only suspended because of the volatility of economic data. The situation in Russia was now “more settled”.

On Friday, nine European countries protested against the IMF’s plans, saying it would damage the reputation of the Washington-based fund to resume dialogue with a country that had invaded another.

After Moscow’s invasion of Ukraine in February 2022, the IMF stopped its annual consultations with Russia.

“We would like to express our strong dissatisfaction with such IMF plans,” the finance ministers of Lithuania, Latvia, Estonia, Finland, Sweden, Iceland, Denmark, Norway and Poland said in a letter to the IMF managing director, Kristalina Georgieva, seen by Reuters.

Georgieva is attending a meeting of EU finance ministers and central bankers in Budapest, where they will ask her about the IMF’s plans, EU officials said.

“What recommendations does the IMF want to give Russia at the end of the consultation? How to better run a war economy?” one senior eurozone official told Reuters.

Tim Ash, a Russia analyst at the foreign affairs thinktank Chatham House, said in a blogpost: “Clearly while article IV reviews are about surveillance they are also about providing policy advice to countries as to where they are going wrong and trying to provide advice as how to improve their economic outturns.

“Inevitably therefore IMF officials, in making the trip to Moscow, will be helping Russia improve its economy and by so doing will be leaving themselves open to being accused of helping Russia in the conduct of the war against Ukraine.”

According to the latest data from Moscow’s Federal State Statistics Service, Russia’s economy grew by 4% annually in the second quarter. However, much of the expansion was in the manufacturing sector, where factory output is increasingly dedicated to the war effort.

Consumer spending is believed to have fallen by as much as 10% but there is little reliable data to make an assessment. Russia’s trade with many countries is also disguised to avoid sanctions, hindering efforts to assess how much foreign income Moscow has accumulated.

Robin Brooks, a senior fellow at the Brookings Institution in Washington, said: “A basic requirement for IMF membership is data transparency, which Russia clearly no longer satisfies on a number of fronts.

“Russia has stopped publishing lots of data and there are questions around whether the data it continues to publish are accurate.”

Brooks said that trade data would be difficult to assess when much of Russia’s oil output was being sent abroad on “dark ships” to evade international sanctions.

He said the Kremlin was publishing trade figures that showed low income from oil produced in the Urals, even though the price of Russian oil has remained “quite elevated”. It meant the current account, which measures the net effect of trade and financial flows, would disguise the size of Russia’s war chest.

“Russia should be suspended from the IMF while these data questions persist,” he said.

Analysis by economists at Bloomberg said that while government subsidies had cushioned domestic businesses against sanctions imposed by the US and the EU, and higher benefits had supported household spending, growth was likely to slow over the rest of the year.

An IMF spokesperson said at a press briefing in Washington on Thursday: “The IMF and all of our member countries have a mutual obligation to conduct article IV consultations.

“It’s in our articles of agreement. Actually, in the case of Russia, since the invasion of Ukraine in 2022, the economic situation has been exceptionally unsettled, which has made it difficult to anchor article IV consultations, especially thinking about the outlook and policy frameworks for both the near and the medium term.

“Now that the economic situation is more settled, article IV consultations with Russia are resuming, as I said at the beginning, in line with the obligations of both the fund and the member country.”