After a 4 percent growth in 2010, Russia’s real output is expected to grow 4.4 percent in 2011, increasingly driven by domestic demand. The country emerged from the global recession with lower-than-expected unemployment and poverty. Although in the short term, high oil prices will help Russia’s export and fiscal revenues, there is no room for complacency. The challenge is to sustain reforms under the conditions of a new oil windfall. Economic policy should focus on the short-term objective of controlling inflation and making medium-term adjustment towards a long-term, sustainable level of non-oil fiscal deficit and a more productive, diversified economy. Improving the efficiency of public expenditure to create fiscal space for productive infrastructure and strengthening the investment climate for the private sector remain among key long-term challenges.