DUSHANBE, July 2, 2014, Asia-Plus – Speaking to the International Monetary Fund (IMF) Survey, IMF Mission Chief for Russia, Antonio Spilimbergo, noted no June 30 that Russia’s economy continued its slow pace of growth in 2013, reflecting pre-existing structural problems and the fallout of geopolitical tensions with Ukraine.

According to him, Russia needs to build on recent reforms in order to address structural problems related to governance, corruption, and administrative barriers as one way to improve its growth prospects.

Russia’s growth model is reportedly based on energy exports, which were supported by significant oil price increases since 2000, and the use of spare capacity in the economy. Now that oil prices have stabilized and spare capacity has been exhausted, growth has slowed significantly. In fact, the entire economy hit capacity constraints in 2011, as evidenced by the beginning of the economic slowdown, while inflation remained elevated. Second, geopolitical uncertainties following Russia’s annexation of Crimea have recently depressed the economy further, with a particularly negative effect on investment.

Asked which countries could be affected by the slowdown in the Russian economy, Mr. Spilimbergo noted, “So far, the impact on neighboring countries has been limited but a larger impact is possible.  This reflects the fact that some neighboring countries have significant exposure to Russia through trade, financial links, and remittances.  For example, countries that have a large trade exposure to Russia include Belarus, Estonia, Lithuania, Turkmenistan, Ukraine, and Uzbekistan. Other countries, like Armenia, Kyrgyz Republic, Moldova, and Tajikistan receive large remittances from Russia.  Some financial centers, including Cyprus, Luxembourg, The Bahamas, Saint Kitts and Nevis, and Seychelles also have significant exposure to Russia through foreign direct investment.”

He further noted that events in Ukraine could also lead to disruption of oil and gas exports from Russia.  For example, Finland, the Baltic countries, Belarus, and Czech Republic rely almost entirely on Russian gas for their domestic consumption.  Dependence is also high at 40–60 percent in central Europe and southeastern Europe.  For these countries, disruption of gas exports by Russia could have significant impact on their economies.