Russia May Trim State Workforce to Improve Productivity

Russia’s government, which employs about 18 million people, should take advantage of low unemployment and cut the public workforce to spur productivity, Finance Minister Anton Siluanov said.

“When it comes to increasing labor productivity, you need to free up workers,” Siluanov told reporters in St. Petersburg today. “We’re afraid to cut jobs for workers in both the public sector and in the private sector.”

Russia, with an economy growing at the slowest pace since a 2009 contraction, can no longer count on the recovery from that crisis and expanding exports to increase output, Elvira Nabiullina, who takes over as central bank chairman next week, said at the St. Petersburg International Economic Forum yesterday. Boosting growth that is slightly below its potential of 3 percent to 4 percent will require improving productivity, cutting costs and boosting investment, she said.

In 2005, the public workforce, which includes law enforcement, the military, state administration, education and health care, accounted for 23 percent of all jobs. That share has since risen to 25 percent, or about 18 million people, according to Alfa Bank estimates.

Unemployment tumbled to 5.2 percent in May from 5.6 percent in April, the Federal Statistics Service in Moscow said yesterday in a report. Economists had estimated a drop to 5.4 percent, according to a Bloomberg survey.

Ruble Gains

The ruble strengthened against the dollar, snapping four days of declines, advancing 0.8 percent to 32.7930 as of 4:11 p.m. in Moscow, snapping a four-day decline. The benchmark Micex stock index rose 0.9 percent to 1,308.59, its first advance in three days.

The economy is operating “at nearly full capacity,” Siluanov said today. “When unemployment is low, it’s entirely possible to conduct structural reforms to reduce the number of workers, and thereby increase labor productivity.”

Russia’s economy expanded 1.6 percent in the first quarter from a year earlier, compared with a 4.8 percent pace in the first three months of 2012. That has set off an argument among policy makers whether lower interest rates are needed to stimulate the economy.

The country still has “significant” slack with about 60 percent of productive capacity in use, down about 10 percent, Economy Minister Andrei Belousov told reporters in St. Petersburg today.

‘Shadow Economy’

“We have an enormous shadow economy, which absorbs all of those reductions in employment,” Belousov said. “The shadow sector comprises almost 20 million people.”

The International Monetary Fund this week cut its 2013 growth forecast for Russia to 2.5 percent from 3.4 percent in April. The economy is operating at full capacity, and policy makers should refrain from short-term fiscal or monetary stimulus that may only accelerate inflation, the IMF said in a statement June 18.

“Fiscal stimulus at this time would likely be ineffective and merely intensify inflationary pressures, given that the economy is operating at full capacity,” IMF Mission Chief Antonio Spilimbergo said in the statement. “Monetary policy should remain geared toward achieving inflation objectives.”

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