Policy brief (Russia ) - Essay Example

With inflation, hitting 7 percent, the prospect of the long periods of low energy prices has increased a lot of pressure on Russia, thereby revealing the problem of overreliance of the Russian economy on oil and natural gas (Gower, & Timmins, 2009). This paper discusses economic diversification as the best policy brief for this situation which is fast becoming a major economic problem in Russia. Introduction The Russian economic problems in the past have shown chronic characteristics i.e. they have shown long term effects, in the sense that the problem has been realized to be persistent in nature, and therefore requires structural measures (a substantial solution to problems facing all the factors of production in the economy).

Recently, the Russian President, Putin, embarked on measures termed as ‘‘energetic’’ that rule tax increases out in the economy, but increase the ability and efficiency of the workforce operation (Gower, & Timmins, 2009). In accordance with economic principles, the current budget moves are necessary since too much state support normally disrupts the market conditions (both money and product) and lower the interest rates in the private sector investments and to particular sectors of the economy (Ellman, 2006).

One crucial point to be realized however is the Russian government-owned Companies accounts for more than half of the economy since 2006. The global economy depends on the stability of the global demand and prices of goods and services. More specifically, Russian economy depends largely on the global demand and prices of its oil exports. In the event of further delay in recovery of the global demand, the Russian exports will be heavily depressed. In this context, the criticality of the Russian economy is directly dependent on the stability of oil price in the world, which currently depends on the Euro Zone recovery (Gower, & Timmins, 2009).

With the United States impending involvement in the oil trade, which might lower the price of oil, much of the Russian vulnerability has been exposed, increasing the risk of overreliance on one sector of the economy. World Bank foresaw a reduced economic growth from 2.3 % to 1.8 % has been associated to slowdown in consumption, stuck investment demand as well as a continuing weak external environment. The increased 3.1% World Bank projection on Russian economic growth by 2014 is also associated to the stability of the global oil demand and prices.

In addition to that, economists consider the Russian economy to be growing to its capacity, with constrained and weak investment activities as well as a very rigid labor market (Malle, 2013). Considering the above facts and projections, the best way of overcoming these economic challenges in the Russian economy and growth becomes the critical growth stimulation policy. Economic diversification, constituting shifts from the past growth models, which generally focused on stimulation of consumption demand (internal and external demand for resources) to a model that constitutes involvement of all sectors of the economy (Ellman, 2006).

These structural changes that open up the constrained non-competitive sectors and market will be the basis of unlocking the idle Russian economic and growth potential. Statement of the Problem Economic stability is a factor of the growth in all economic sectors of the country. The aspect of economic stability starts from internal structural stability to