Russian Federation · Toward Medium Term Viability

Russia's program of economic reform has achieved significant success: price controls have been broadly removed, privatization has shifted two-thirds of enterprises to private ownership, and the economy is gradually becoming integrated with world markets. However, the transformation process has been compromised by inadequate attention to two critical elements of the reform program: sustained macroeconomic stabilization and institutional strengthening to support the market system. The focus of this report is on fiscal adjustment: how to reduce the public deficit while restructuring expenditures to be more efficient and to protect the disadvantaged. Reduction of the fiscal deficit will be essential to achieving stabilization and restoring growth. To keep the stabilization program viable the Government will have to maintain tight fiscal discipline and further reduce the deficit to an estimated 1 percent of GDP by 1999, a further requirement is the redefinition of the role of government. In sum, the authors cover five major issues which form the core of this report: tax reform, intergovernmental financial relations, enterprise support, housing subsidies, and social safety nets.