The Russian government needs to focus on reforms to maintain a high level of GDP growth and improve global competitiveness, says VTB Capital.
Oreshkin thinks it may well be too hard to reach this target. He said: “”Russia is not the only country looking to achieve this goal. Its competitors are addressing the same issues.”
But he does consider accession to the top 50 countries a much more likely scenario if the government pushes ahead with the planned reforms.
He says: “It is vital that policy makers make the changes required to encourage more investment and foster a strong climate for business. Whilst there are improvements being made in Russia, such as tackling fraud, more needs to be done.
In his view, Russia’s accession to the World Trade Organisation is a step in the right direction, but it is a long term process.
“President Putin’s call for Russia to join the OECD would also help encourage investment. These reforms are steps to building the right foundations. There’s no reason that Russia can’t achieve the dramatic growth that China has in recent years,” he thinks.
Another key issue that needs to be tackled, in his view, is the pension reform.
He says: “We believe there’s a strong argument for changing the retirement age from 55 to 60 for women, and from 60 to 65 for men. It would make the long-term fiscal outlook more sustainable.”
There are, however, no plans to introduce this reform in the near future. On the contrary, the government has approved legislation that will reduce the pot of pension fund assets in the country.
Recently, the Kremlin decided to decrease contributions to the funded part of the pension system from 6% to 2%. Oreshkin is against this development, concerned it will have a negative effect on GDP growth and the fiscal budget.
He is convinced long term savings are a key driver of financial markets and the government’s decision is a mistake. As a result, he is not optimistic on the investment climate in the coming year.
Yet he hopes the mistake will be rectified when it becomes apparent the reform has not worked.