(MENAFN- AFP) The International Monetary Fund slashed Russia's 2014 growth forecast on Tuesday while warning that faster expansion would be hard to achieve without a change in the energy-rich country's economic model.
An IMF team said after concluding a regular mission to Moscow that it was cutting its 2014 projection to 2.0 percent from the 3.0 percent last issued in October.
It added that growth was likely to reach 1.5 percent this year -- slightly higher than the 1.4 percent expansion rate Russian Economy Minister Alexei Ulyukayev predicted at the start of the month.
"Structural reforms should be a critical element of any plan to enhance Russia's growth potential," the IMF team said in a statement.
"Inadequate infrastructure, constraints on access to finance for many firms -- especially small- and medium-sized enterprises -- and skill mismatches in the labour market appear as key obstacles."
The fund in October encouraged Russia "to embrace a new growth model" that shielded it from wild swings in the global price for its world-topping oil and natural gas exports.
Soaring energy prices saw Russia's economy expand at an annual rate of seven percent during Vladimir Putin's first two terms as president between 2000 and 2008.
But Russia has sine turned into one of the world's worst emerging market performers as oil prices peaked and then retreated while the government's spending commitments continued to rise at unprecedented rates.
Inefficient state spending and bureaucratic red tape are now viewed as primary culprits behind insufficient investment and capital flight that reached $12.9 billion between July and September.
The slowdown's rapid pace has surprised both the government and economists who have been forced to lower their yearly projections several times.
Putin had initially sought five-percent growth for 2013 that would have marked another step in Russia's comeback from an economic implosion suffered during the 2008-2009 global financial crisis.
The government has since conceded that Russia was on track for its worst economic performance in four years. The economy ministry last month further warned that negligible growth was now almost a certainty through 2025.
Both economists and analysts at the IMF see no quick and easy cures for Russia's ills besides the pursuit of the types of reforms the government has been blamed for ignoring for most of the past two decades.
The IMF pointed out that inflation was running above target and urged against monetary easing steps because they were both dangerous and could prove ineffective since the economy was operating "close to its full capacity".
Its report said that "further corporate governance reforms and a reinvigorated privatisation agenda would be welcome."
But it also cautioned Putin's team about having exaggerated assumptions about the global price of oil in the coming three years that are making "budgets appear insufficiently ambitious".
'Low competition'
The return of inflation has recently turned into one of Putin's most nagging worries because it carries such negative connotations among voters who remember the hyper price surges of early post-Soviet years.
The annual rate has recently slowed to 6.4 percent but is still on pace to break the central bank's 6.0 percent target for the year.
Some of the rise in prices has been linked to the government's applauded decision to introduce market rates to the vast and largely unreformed utilities sector.
But economists fear that inefficiencies may keep prices above average and mean that inflation remains a persistent concern.
"Though next year's tariff freeze will help keep price growth in check, low competition on the domestic market will continue to put upward pressure," Alfa Bank said in its monthly economic overview.
The central bank will therefore "have to keep rates unchanged in anticipation of a pick-up in the consumer price index in 2015, or otherwise provoke an overheat" in the economy.
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