Russia’s recession deepened in the first half of 2015 with a severe impact on households. The economy continues to adjust to the 2014 terms-of-trade shock amid a tense geopolitical context marked by ongoing international sanctions. Oil and gas prices remained low through the first half of 2015, further underscoring Russia’s vulnerability to volatile global commodity markets. The weakening of the ruble created a price advantage for some industries, boosting a narrow range of exports and encouraging investment in a certain sectors, but this was not sufficient to generate an overall increase in non-energy exports. Investment demand continued to contract for a third consecutive year. Economic policy uncertainty arising from an unpredictable geopolitical situation and the continuation of the sanctions regime caused private investment to decline rapidly as capital costs rose and consumer demand evaporated. The record drop in consumer demand was driven by a sharp contraction in real wages, which fell by an average of 8.5 percent in the first six months of 2015, illustrating the severity of the recession. However, the deterioration of real wages was also the primary mechanism through which the labor market adjusted to lower demand, and unemployment increased only slightly from 5.3 percent in 2014 to 5.6 percent in the first half of 2015. The erosion of real income significantly increased the poverty rate and exacerbated the vulnerability of households in the lower 40 percent of the income distribution.

The policy response by the authorities successfully stabilized the economy. The transition to a free-floating exchange rate allowed imports to adjust to a 17 percent depreciation in the real effective exchange rate during the first half of 2015, strengthening the current-account balance. Meanwhile, measures to support the financial sector appear to have contained systemic risks, and there are early signs of stabilization. Nevertheless, the pass-through effect of the December 2014 depreciation boosted inflation to levels not seen since 2002. Even as the recession deepened in the first half of 2015 controlling inflation became the central bank’s main policy challenge. Low oil prices continue to put downward pressure on federal revenue, ushering in a period of difficult fiscal consolidation. Real public spending is expected to fall by 5 percent in 2015, notwithstanding a temporary increase in the first half of the year caused by frontloaded expenditures as part of the government’s anti-crisis plan to cushion some of the fiscal consolidation impact. Falling oil revenues constrained the government’s ability to counter the decline in real income, and nominal increases in pensions and social benefits were below the headline inflation rate. This accelerated an already troubling rise in the poverty rate, which climbed from 13.1 percent in the first half of 2014 to 15.1 percent in the first half of 2015.

Read more in Russia Economic Report 34: Balancing Economic Adjustment and Transformation

Last Updated: Sep 30, 2015

The current 2012–16 Country Partnership Strategy was discussed by the Board of Executive Directors on December 20, 2011. It is aligned with government priorities and covers four themes: (i) Increasing Growth and Diversification, (ii) Expanding Human Potential, (iii) Deepening Russia’s Global and Regional Role, and (iv) Improving Governance and Transparency (as a cross-cutting theme).The strategy endorsed an envelope of up to US$5 billion in IBRD lending to support the program over the five-year period. IFC committed to invest between US$3.8 and US$4.8 billion for its own account, plus the significant mobilization of counterpart funds. The Multilateral Investment Guarantee Agency (MIGA) continues to support foreign investors through the provision of political risk guarantees.

Russia is a strategic partner for ECA. The World Bank Group engagement with the country is unique in that it is three-dimensional: global, regional, and national. At the global level, Russia has increased its contributions to IDA and supports the provision of global public goods through contributions to global funds. In addition, the Bank offers its expertise to help prepare Russia for the presidency of international forums. At the regional level, the World Bank Group supports Russia as an emerging donor for less-developed countries in ECA. Russia is already a significant provider of development assistance through a growing portfolio of IDA/IBRD-administered trust funds. At the national level, the World Bank Group aims to maximize its development by reaching out to the regions in Russia with the most development needs.

The Russia program is distinguished by several cooperation and innovation initiatives. These include IFC and IBRD subnational lending, IBRD RAS, and IFC advisory programs. The World Bank Group is in constant search of innovative engagement opportunities and instruments, such as direct lending to regions with a sovereign guarantee and a mechanism to fund analytical work and technical assistance to poorer regions. For IFC, Russia serves as a platform for innovations, and advisory solutions developed in Russia have been replicated in many other countries within the ECA region as well as across the globe. These, among others, include advisory services on resource efficiency, cleaner production, and sustainable energy finance.  IFC and IBRD are now in the process of developing new “one-World Bank Group” solutions for solid waste management.

For more details, please see “The 2012-16 Country Partnership Strategy”

Last Updated: Apr 17, 2015

The World Bank

The Russian Federation joined the World Bank (IBRD and IDA) in 1992. The Bank has provided financing for 70 projects in different sectors totaling slightly over US$10.5 billion in IBRD loans. About 95 percent of the total portfolio has already been disbursed.

The current IBRD portfolio consists of 10 projects with a total current commitment of US$668.3 million (as of October 2015). All of the Bank’s financing to Russia is currently provided in the form of investment project financing. Reimbursable Advisory Services (RAS) show steady demand, with continued interest from the regions and growing demand from the federal government.

Portfolio quality is satisfactory. Several projects hold moderately satisfactory ratings for implementation progress. Two of these projects, namely, the Forest Fire Response Management Project and the Second National Hydromet Modernization Project, are being closely monitored, as there are significant delays in implementation. The Judicial Reform Support Project went through two intensive restructurings and has been upgraded to satisfactory. The current disbursement ratio is around 2.4 percent. The average project age is 6.26 years, attributable to the fact that the majority of the projects are designed as five-year investment operations.

Advisory Services and Analytics (ASA) remain an important part of IBRD’s engagement in Russia. In close cooperation with the Government, ASA products are helping to modernize public finance and administration and improve social service delivery and the investment climate. The Bank expanded its technical assistance to areas of early childhood development and social development, such as technical assistance on indigenous people and social accountability. In FY16, along with two traditional flagship Russia Economic Reports, the World Bank plans to release a study on “Connectivity and Inclusive Growth in Russia.”

In October 2014, the World Bank and IFC presented “Doing Business 2015: Going beyond Efficiency.” The report found that the Russian Federation has made starting a business easier by eliminating the requirement to deposit the charter capital before company registration as well as the requirement to notify tax authorities of the opening of a bank account—a reform applying to both Moscow and St. Petersburg. In addition, it made transferring property easier by eliminating the requirement for notarization and introducing tighter time limits for completing property registration. This reform also applies to both Moscow and St. Petersburg. Russia’s ease of doing business ranking in Doing Business 2015 was 62, and its 2014 back-calculated ranking was 64. Its distance to frontier score in Doing Business 2015 was 66.7, and the 2014 back-calculated score was 65.0, with an improvement of 1.6.

Demand has grown rapidly for RAS. Since 2007, the World Bank has entered into more than 80 RAS. Agreements cover a wide range of activities that are well aligned with Russia’s development challenges. RAS are also of increasing importance for Russia’s regions, as more than 30 of Russia’s subnational governments have signed at least one RAS with the World Bank (15 currently active in nine different regions).

Innovative RAS products allow the World Bank Group to build and keep a lead in global knowledge provision. One of the areas of early demand for RAS was in support of a large-scale infrastructure project in which the World Bank Group advisory services supported the St. Petersburg Pulkovo airport expansion based on a PPP. Pulkovo attracted more than €1.2 billion in private investments and was awarded the title of “Global PPP Deal of the Year” by Infrastructure Investors in 2011. As international experience and analytical components are often critical success factors for education, health, and social protection, demand from clients has led to the widespread use of RAS in associated global practices as well. During the past two years, RAS are also in demand for improving the investment climate, providing economic policy advice, and bolstering the local initiatives support program.

International Finance Corporation

Russia became an IFC member in 1993. Since then, IFC’s long-term investments in Russia have totaled US$10 billion, including US$3.5 billion in syndicated loans across 263 projects. As of September 2015, IFC’s current committed investment portfolio in Russia was US$1.5 billion in about 70 projects with roughly 50 clients.

In line with the World Bank Group CPS, IFC continues to support economic diversification and growth in Russia by helping its private sector clients realize long-term development potential, with a particular focus on maximizing impact in less-developed regions. These efforts include the creation of new high-skilled jobs; the expansion of high value-added manufacturing; and the improvement of transport and social infrastructure to provide people and companies with better access to goods and services. In addition, IFC provides Russian companies and banks with strategic advice on achieving long-term sustainable growth, increasing energy and resource efficiency, and improving corporate governance, and also advises Russian regions on structuring municipal infrastructure projects.

Multilateral Investment Guarantee Agency

MIGA’s gross exposure in Russia was US$705 million as of September 2015 (with a net exposure, after reinsurance, of roughly US$381 million) in eight active contracts (seven projects)—MIGA’s fourth-largest net exposure. In dollar terms, MIGA’s exposure is heavily concentrated in Russia’s financial institutions, including the country’s banking, mortgage, and leasing subsidiaries. Projects in the manufacturing, services, and infrastructure sectors are also covered by MIGA’s programs. MIGA offers several traditional political risk insurance products that cover the following risks: Transfer Restriction and Convertibility, Expropriation and Breach of Contract, and War and Civil Disturbance, as well as their new product covering the risk Non-Honoring of Financial Obligations by a State-Owned Enterprise.

Last Updated: Oct 05, 2015


Russian Federation: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments