Russian Federation

The Russian Federation weathered the global crisis of 2008-2009 well, in part due to a large fiscal stimulus. The Government took decisive action to provide emergency support to banks and enterprises bringing returned growth, and implemented social protection measures to prevent a collapse in consumption.

In 2010, Russia’s economy returned to moderate growth, on the heels of domestic demand and higher oil prices, with lower than expected unemployment and poverty. In 2011, the country recovered its pre-crisis output level and returned to a fiscal surplus.  Russia is the top producer and number two exporter of oil, so when oil prices plummeted during the crisis it served as a stark reminder of the Government’s over-dependence on oil and gas and the need to diversify.

Nevertheless, in the past decade, this dependence has increased.  The share of oil and gas exports has risen from less than one half of total exports in 2000 to two-thirds in recent years. However, Russia’s oil output is projected to reach a plateau from the middle of this decade onwards.

There has been some shift to services over the years but the economic structure is still dominated by large corporations with a concentration in natural resources and low value-added industries, while contributions from the small and medium enterprises sectors are limited.

Russia has a favorable short-term fiscal outlook due to a sizable budget surplus, and the economy was expected to grow by 4.1 percent for 2011, followed by 3.5 percent in 2012, and by 3.9 percent in 2013.

However, Russia still faces some short-term challenges. It remains vulnerable to a prolonged recession in Europe that could trigger a global slowdown.

The sovereign debt crisis in Europe is putting renewed pressure on Russia’s banking sector. Russian banks have limited direct exposure to European sovereign risks, but they increasingly rely on funding from Eurobonds and syndicated loans from Europe. As a result, they have recently started to face tighter access to wholesale funding in international markets. In these conditions, debt refinancing could be a challenge for Russian banks.

Russia may also face fiscal pressure if the prices for its main commodity exports decline due to a slowdown in global demand. To reduce this vulnerability, Russia needs to exercise fiscal restraint and to rebuild fiscal buffers while oil prices are still high. This requires a prudent spending plan and saving of oil revenues.

A fiscal policy aimed at improving the non-oil fiscal balance would put Russia in a stronger position to weather a new crisis. Currently Russia’s non-oil fiscal deficit remains at about 10 percent of GDP. At the same time, there is much potential to raise the quality of public spending to improve public services without additional spending.

In the medium and long term, Russia’s growth will depend on the success of establishing a new growth model that addresses two critical challenges: increasing the competitiveness of the economy and fostering innovation to diversify the economy; and coping with demographic change pertaining to Russia’s declining and aging population.

Russia’s longer-term challenge is to sustain high rates of economic growth in spite of declining oil and gas production and a shrinking workforce. This calls for a policy of modernization across many areas: business environment, innovation, public administration, and social services.

The accession agreement with the World Trade Organization (WTO) is an important step, as trade openness will stimulate Russian firms to increase their competitiveness. Also, the operation of the Customs Union between Russia, Kazakhstan, and Belarus could widen regional benefits of stronger trade ties, especially if it leads to a reduction in the many non-tariff barriers that persist. Russia is also a member of the Group of 8 and the Group of 20, and is becoming a significant provider of crisis response funds and development assistance. Russia’s competitiveness will also benefit from further economic integration with the rest of the word.

Russia is an upper middle-income country that strives to move to a high-income status. In the period since 2005, the per capita GDP of Russia doubled to approximately US$ 10,360 in 2010. The poverty rate was at 12.6 percent at the end of 2010, and is projected to drop to 11.6 percent in 2012 as the economy continues to recover. The unemployment rate has also declined, reaching 6.6 percent on average in 2011.

Russia spends a smaller share of their overall government budget on education compared to other high-income countries, but they achieve similar outcomes. Reforms aim to improve the quality and the efficiency of public spending on education.
Health indicators remain low in Russia compared to countries with similar levels of development, and the differences in health outcomes across regions are profound. Life expectancy is slowly increasing and measures to fight HIV/AIDS and Tuberculosis are showing initial positive results.

Regional development continues to be a challenge for the largest country in the world by land area. Across its 83 regions there are significant contrasts in socio-economic, climatic, and geographic conditions. The Government has embarked on a series of reforms to provide equal access to social services and infrastructure across the country.

With nearly one-quarter of the world’s pristine forests, Russia has a major impact on the global climate-change agenda. But, the country’s position on climate change is evolving slowly and Russia has yet to become an active participant in global climate change initiatives. Concentration has been put on increasing energy efficiency measures and establishing the legal and financial framework for carbon finance.

Russia’s long-term complex challenges call for coordinated actions by all levels of the Government.  Russia must rise to these challenges to reach its goal of becoming an advanced, high-income economy. Russia’s Strategy for the period until 2020 clearly recognizes these critical challenges.

Russia joined the World Bank (IBRD-member and IDA-donor country) in 1992.

The Russia strategy has several unique cooperation initiatives. These include IFC-IBRD sub-national lending, reimbursable technical assistance, and a joint strategy that gives IFC (International Finance Corporation) and MIGA (Multilateral Investment Guarantee Agency) a key role in private sector development.

The World Bank Group’s 2012-2016 Country Partnership Strategy (CPS), which had been mulled over by the representatives of Russia's civil society organizations and think-tanks during the CPS consultations throughout 2011, and then was discussed by the Board in December 2011, supports Russia’s efforts to::

• Increase growth, modernization, and diversification through better management of public finances, improved investment climate and innovation, a stronger financial sector, better infrastructure, and more effective protection of the environment.
• Expand human potential by strengthening skills and social services through improvements in the quality and efficiency of education, health, and social protection, including the pension system.
• Deepen Russia’s global and regional role related to Russia’s efforts as a provider of assistance to less developed countries and the provision of global public goods.
• Improve governance and transparency through more accountability and better service standards in public administration, procurement, and financial management (as a cross-cutting theme).

The new strategy aims to consolidate World Bank Group support for Russia through greater synergy among its members—IBRD, IFC, and MIGA — in support of the Government’s development goals in diversifying growth through more effective management of public finances, better investment climate, stronger financial sector development, more sustainable development, and maximizing Russia’s human potential through better education, health, social protection, and social inclusion.

The World Bank Group’s unique, three-dimensional approach will engage in Russia on three levels: nationally, regionally, and globally.

At the national level, the Bank will aim to maximize its development impact for the country mainly by trying to reach out to the poorer regions of Russia. As the largest country in the world and a regional growth and migration pole in Europe and Central Asia (ECA), Russia’s national choices also have critical impact on regional and global challenges

At the ECA regional level, the World Bank Group will focus on supporting “Russia as a donor” through technical assistance for capacity strengthening. The Government will likely concentrate its development aid on poorer countries in ECA with which it still has strong economic and historical links.

At the global level, the World Bank Group will provide advisory services and knowledge to support Russia’s efforts in providing global public goods. It will assist Russia in enhancing its voice in international forums such as the G8, G20 and the Asia-Pacific Economic Cooperation (APEC), and will support the country’s integration into the World Trade Organization (WTO).

The World Bank Group will continue to support Russia’s growing and varied civil society in its public-private partnership roles. The Bank will also foster partnerships with leading Russian universities and academia and encourage close cooperation with other multilateral institutions, such as the International Monetary Fund (IMF), the Eurasian Development Bank (EDB), the European Union (EU), and the European Bank for Reconstruction and Development (EBRD).

Given Russia’s size and strong financial position, engagement with the World Bank Group (WBG) has been selective and strategic. Working in partnership with the Government, results yielded from the more than 70 World Bank projects have helped Russia in its own efforts to maintain prudent macroeconomic policies, make public administration more efficient, restructure the health sector and educate children for the global information society. Also, the Bank lays out plans to provide, but not limit, support to new operations in areas such as: financial sector development, infrastructure development, energy efficiency, and forestry protection.

Today, IBRD is financing 10 investment projects in Russia for the total amount of US$ 987 million.

The demand in Russia has grown rapidly for “knowledge services,” including reimbursable technical assistance, that cover a wide range of activities that are well aligned with Russia’s own development challenges, from human development to social assistance, to public private partnerships (PPP) and to capacity-building for official development assistance.

Since 2007, the World Bank Group (WBG) has provided Government-endorsed reimbursable technical assistance to more than 30 of Russia's sub-national governments.

At the regional level (in Europe and Central Asia), the Bank is partnering with Russia in programs for public financial management, and on a global level Russia’s priorities include education quality, infectious diseases, and energy and food security.

The World Band Group in Russia is increasingly working with counterparts at the federal, regional and sub-regional level, coordinating closely with many partner groups, including international organizations, as well as working with bilateral agencies and technical partners including NGOs.

Recent Results Include:

Higher Education in Tatarstan
One of the most economically developed regions in the Russian Federation, Tatarstan spends more than average on university–level scientific research, but its scientists are often isolated from their international peers, and their findings sometimes lack recognition. The Republic is looking to raise the profile of its higher education to attract well-known professors and more students from outside Tatarstan, as well as more private investment. The aim, a national priority, is to develop colleges and universities that offer degrees for graduates who can earn high salaries, contribute to their region's economic development, and can compete well abroad.

Making Health Care Healthier for All
Improving the quality and access of health care is a national priority for Russia. With reimbursable technical assistance from the World Bank, the Kirov region has been able to close old, inefficient hospitals and build local family clinics in their place making basic and preventive health care accessible and available to everyone, especially in the countryside, which often suffers from too few doctors.

Leveraging Private Investment in St. Petersburg's Infrastructure
The World Bank's partnership with St. Petersburg is helping transform their aging airport into a modern one. The project is the result of the first international public private partnership (PPP) in Russia to close without government guarantees or financial contribution since the global financial crisis hit. St. Petersburg invited the World Bank to contribute strategic advice over several years as this complex deal between city administration and private sector was shepherded to fruition. The International Finance Corporation, part of the World Bank Group, is among the investors.

Helping People Help Themselves
A new program in a series of small villages in Russia relies on local decision making to address local needs. A paved road, improved water system, or even building a much-needed playground for the village children—decisions on these now come from the bottom up through Local Initiative Support Projects (LISP). Projects are covered using funds from the government, some from local businesses, and some from the villagers themselves.

Forecasting the weather to minimize damage to people and the economy
The World Bank estimates weather-related disasters cost the Russian economy US$ 1-2 billion per year. Faster warnings for floods, high winds, tornadoes, extreme heat and cold will make Russian industry, from agriculture to transport, more competitive. With support from the World Bank, Russia is modernizing its methods for collecting data and building models for weather trends. In the North Caucasus, local officials say the new system will provide them with emergency warnings up to two hours earlier than two years ago. As the weather becomes more unpredictable due to climate change, prediction systems help people get ready for major weather crises and can help save lives.