Russia must invest, innovate and clean up its weak and often-corrupt state to sustain the heady economic growth rates of recent years, the OECD said today.
"The challenge confronting policy-makers is to facilitate Russia's transition into a period of self-sustaining, investment- and innovation-led growth," the Organisation for Economic Co-operation and Development (OECD) wrote in a Russia survey.
The government should continue to save, not splurge, the oil riches that have transformed Russia's fortunes from default and devaluation in 1998 to today's emerging economic powerhouse, it said.
Russia posted average annual growth of 6.7 per cent between 1999 and 2005, underpinned by a dramatic improvement in its terms of trade thanks to booming energy and commodities exports.
That has raised the living standards of ordinary Russians, lowering the official poverty rate to 18 per cent in 2004 from 30 per cent in 2000.
But the competitive boost to Russia from the devaluation of the rouble in 1998 has now been eroded by inflation, OECD economists William Tompson and Christian Gianella wrote in the report.
Russia's $1 trillion economy is running up against capacity constraints and with a demographic crisis expected to start reducing the size of the workforce from next year, sound fiscal policy and investment will be vital to sustain growth.