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The IMF’s Controversial Russian Forecast, Explained

  • The IMF forecasts a 0.3% growth in Russia's economy for 2023.
  • Critics question the credibility of Russian statistics and suggest a possible whitewash, given the country's shift towards a state-controlled economic model and disconnection from Western measures.
  • The country's economy is fueled by oil and gas, sold increasingly at a discount to China and India, and is hampered by a dwindling human capital and a workforce killed or maimed in battle.

For more than a year now, Russia's economy has been pummeled by a series of Western sanctions aimed at punishing Moscow for its invasion of Ukraine.

So when the International Monetary Fund (IMF) predicted the economy would in fact grow in 2023 -- a meager 0.3 percent, but growth nonetheless -- the Washington-based lender raised eyebrows among Russia watchers and economists.

For some, the conclusion suggested something troubling: a whitewash, or a willing parroting of Russian statistics whose credibility was already in question.

The controversy comes as Russia's invasion of Ukraine nears its 14th month and its economy, ranked 11th in the world in 2021, lurches into a new model.

As before, the new evolving model will still be fueled by oil and gas -- but at the same time, it will be hampered by dwindling human capital as younger workers flee the country and a growing proportion of the workforce is killed or maimed in battle.

And the new model is now one dominated by state companies, even more reliant on revenues from oil and gas -- increasingly sold at a discount to China and India -- and largely isolated from the international financial system.

Also accompanying that shift is a subtle move away from Western measures that Moscow had embraced for years, including accounting standards and transparent releases of data sets and statistics used by economists, investors, and market watchers to guide decisions.

"It's like North Korea, they don’t release their data either," Oleg Korenok, a professor of economics at Virginia Commonwealth University, told RFE/RL's Russian Service.

"Now everyone is just guessing," he said.

A Bad Year. But Not That Bad.

By a wide margin, the consensus on Russia's economy in 2022 was this: It was a bad year, but it could have been worse.

Western policymakers had hoped sanctions would grind the economy to a halt and force the Kremlin to change its decisions regarding Ukraine.

That didn’t happen. Russia's economy proved more resilient than many Western experts expected or hoped.

Part of that was due to continued exports of oil and gas to the West at or near record-high prices, and customers in other parts of the world. Part of that was due to years of conservative fiscal policies, which had stuffed Russia's sovereign-wealth coffers full of reserves, to buffer against foreign economic shocks. Part of that was also some of the investment that Russian businesses made to find new supply chains away from Western markets: new port facilities, new railroads, new pipeline facilities.

In the weeks after the IMF's forecast was released in January, commentators jumped on its findings, alleging that they were implausible, wrong, or something more nefarious.

The Russian Central Bank's own survey of economists forecast a 1.5 percent fall in gross domestic product (GDP) in 2023.

In an article published on February 10 under the headline "The IMF's Outlook On Russia Is Too Rosy To Be True," Reuters columnist Pierre Briancon argued that the IMF's forecast may have been based on misguided assumptions about world oil prices and a Western-imposed price cap on Russian oil.

Set at $60 a barrel, that cap is imposed on seaborne Russian oil. That means that customers who want to buy Russian oil have to pay that price, or less, if they want oil shipped via companies, or covered by insurers, based in the European Union or other countries that agreed to the cap.

A month later, Yale University professor Jeffrey Sonnenfield took the criticism further.

"Far from serving as the independent arbiter of the statistical underpinnings of global economic activity, the IMF has been asleep at the switch," he said in a column published on March 6. "With respect to Russia, it is naively echoing Putin's own invented GDP forecasts, in effect, canonizing and legitimating these economic myths with no verification -- in fact, no independent analysis at all."

Sonnenfield and his co-authors also included a link to the IMF's own cautionary note that accompanied the initial forecast: "We agree that there is massive uncertainty surrounding the future of the Russian economy, and hence doing a forecast could be seen as a 'fool's errand.'"

Agathe Demarais, global forecasting director at the Economist Intelligence Unit, echoed that criticism.

"The real problem is in Western countries: Experts and media quoting Russia’s recession figure should probably take the time to question their data instead of amplifying the Kremlin’s talking points," she said in an article published in March.

Fishy Numbers

That Russia's statistics-collection practices are in question isn't new.

As far back as the end of 2018, there were growing doubts when Rosstat, Russia's lead agency on the subject, got a new boss after President Vladimir Putin suggested publicly that there might be a problem with how government statisticians gather their data.

Weeks after the appointment, Rosstat released an optimistic -- wildly, by some accounts -- estimate of economic growth for that year.

During the COVID pandemic, demographers and outside statisticians repeatedly questioned how the government was compiling and releasing its tallies on the death toll and related figures. A leading research scientist who publicly criticized the government figures was later fired.

With Russia's macroeconomic data, there’s ample evidence of woe since the imposition of sanctions: Automobile production has gone off a cliff, for example. The domestic airline industry is struggling to repair and maintain its fleets. Myriad companies have scrambled to find replacements for critical components, like computer chips and more minor items such as shirt buttons.

But the overall economy did not go off a cliff; Western countries continued to buy Russian oil and gas and the government ramped up spending on Ukraine-bound weaponry -- bullets, artillery shells, tanks, and missiles -- helping keep things afloat.

In a statement to RFE/RL, an IMF spokesman defended the forecast, saying the fund's staff were reliant on national authorities to supply accurate data.

"At the same time, staff also rely on a wide array of official but also nonofficial data to obtain a fuller picture of economic developments in Russia (and any member country)," he said. "This may involve, for example, the use of third-country trade data to assess Russian exports and imports, or private cargo data to monitor Russian oil exports."

In its latest report forecasting a 2 percent drop in Russian GDP for 2023, the Bank of Finland's Institute for Emerging Economies made a passing reference to the difficulty of analyzing Russian numbers.

"The transition from a market economy to a wartime model will also make it more challenging to monitor and analyze Russian economic developments," it said.

Still, the criticism of the IMF was off base, said Iikka Korhonen, head of the Institute.

"Reasonable people can arrive at different forecasts, especially if they have different assumptions," he said in a message to RFE/RL. "And we don't know [exactly] how they expect oil exports to perform, for example. Some investment banks have positive 2023 GDP numbers as well."

Those investment banks include Wall Street giant J.P. Morgan, whose 2023 forecast -- 1 percent growth -- was even more optimistic than the IMF's.

"I think production numbers are still fine, but 2022 national accounts don't quite fit together," Korhonen said. For example, "investments are strange, especially since machinery and equipment imports went down a lot."

In a report last month, Tatiana Orlova, an economist at the U.K.-based Oxford Economics, said that she predicted a 0.4 percent drop in GDP for 2023, in part because of forecasts that the war in Ukraine could intensify in the coming months.

"The beginning of the economy's pivot to the East required a rapid expansion of capacity of ports, border crossings, and other infrastructure," she wrote.

The IMF is likely to adjust its forecast -- and past assessments -- when it releases its larger global outlook next month.

Aleksandra Prokopenko, a former adviser at the Russian Central Bank, also disagreed with the criticism. She said IMF analysts were using broader data than simply Russian government statistics to arrive at their conclusions.

"I do not believe that the IMF is whitewashing Russian statistics. And I definitely wouldn't come to such a conclusion based on their optimistic forecast," she told RFE/RL.

'Irreversible Changes In The Priorities Of Economic Policy'

One of the biggest factors will be how low global oil prices remain -- for example, under the $60-per-barrel Western oil cap.

Regardless of this year's contradictory forecast, most experts predict Russia’s economy will sputter and stagnate in the medium term, as state spending crowds out the private sector, imports are substituted with poorer quality goods, inflation increases, and the country fails to keep pace with Western innovation -- not unlike what happened in the Soviet Union in the 1970s and 1980s.

That's a forecast the IMF also shares.

"Over time, the loss in human capital, isolation from global financial markets, and impaired access to advanced technology will hamper the Russian economy," it said in its statement to RFE/RL. "By 2027, IMF staff project output to be around 7 percent lower than prewar forecasts indicated."

Massive capital outflows and isolation from the international markets and financial system are also factors that haven't yet been fully incorporated into the economy, says Kirill Rogov, a Russian political scientist.

"This crisis will be exacerbated by irreversible changes in the priorities of economic policy, the absolute priority of which has finally become the military sphere," he wrote in an article for the Wilson Center, a Washington, D.C., think tank.


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Leave a comment
  • Hugh Williams on March 22 2023 said:
    Radio Free Europe presents the US government´s point of view which we get in all of the US and European media.
  • Steven Bowles on March 22 2023 said:
    First and last time I visit this site.
    This article is just economic and factually illiterate. It is as though chat GPT just spewed out some anti Russian propaganda.
  • Mamdouh Salameh on March 22 2023 said:
    In fact, the International Monetary Fund (IMF) is projecting 2.3% growth for the Russian economy in 2023 compared with 0.8% for the EU and also 0.8% for the United States in 2023 rising to 0.9% in 2024.

    Despite unprecedented Western sanctions against Russia, bans on its oil and gas exports and an oil price cap, the Russian economy looks in far better shape than the economies of the EU and the United States.

    The reason for that is that Russia’s economy is virtually self-sufficient meaning that Russia doesn’t need to import anything unless it wishes to do so. Moreover, since the US imposed sanctions on Russia in 2014 in the aftermath of the annexation of the Crimea, President Putin has been preparing the Russian economy to withstand Western sanctions and financial restrictions. That is why Russia’s economy ended 2022 with a current account surplus of $228 bn and a trade balance surplus of $290 b according to Russia’s Central Bank data.

    Russia’s trade with China rose from $11 bn in 2013 to $190 bn in 2022. In fact, Russia has everything China needs while China provides Russia with the biggest market in the world for its exports including energy exports. Furthermore, value of Russian trade with India hit $30 bn in 2022 and is projected to expand to $35-$40 bn in 2024.

    Moreover, Russia’s GDP in 2022 was $4.85 trillion based on purchasing power parity (PPP) ranking 6th in the world according to World Bank data.

    In view of the above, Western media resorts to disinformation to discredit Russian achievements simply because they don’t want to believe that Russia’s economy could withstand Western sanctions and financial isolation and still survive.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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