Overview

Russia’s anticipated economic recovery has been delayed, and the country continues to adjust to an adverse external environment of lower oil prices and international sanctions. In 2015, the consequences of these twin shocks caused real GDP to contract 3.7 percent.

The adjustment to the worsening external environment caused an estimated 10 percent drop in gross domestic income, which sapped consumer demand and discouraged investment. The decline in real income has had a significant impact on poverty - the poor population increased by 3.1 million to 19.2 million total in 2015.

Thus far, the government’s policy response has facilitated Russia’s economic adjustment. Thanks to the Central Bank’s flexible exchange rate policy, the exchange rate alignment improved which supported the economic transition. Due to the flexible exchange rate, the fiscal impact of the adjustment was less severe for Russia than it was for other oil exporters, though a fiscal consolidation plan remains necessary. Moreover, the depreciation has presented Russia with an opportunity for a broad-based improvement in Russia’s international competitiveness and to transform its export profile by diversifying away from primary commodities. Leveraging emerging opportunities to develop a broader and more sophisticated product and export mix will require a substantial and sustained increase in private investment.

The World Bank expects that the Russian economy faces a long journey to recovery. While the conditions that pushed Russia’s economy into recession may be gradually abating, the World Bank’s current baseline scenario anticipates a further contraction of 1.9 percent in 2016, before growth is expected to resume at a modest rate of 1.1 percent in 2017.

Meanwhile, the continuing recession is projected to partially reverse Russia’s recent progress in alleviating poverty and promoting shared prosperity. Weak income dynamics are expected to continue to adversely affect poverty projections. The poverty rate is expected to increase from 13.4 percent in 2015 to 14.2 percent in 2016. The projected increase in 2016 would return poverty rates to their 2007 levels, undoing nearly a decade’s worth of gains.

The Bank emphasizes that risks to Russia’s economic outlook are tilted to the downside. The economy faces strong headwinds from an uncertain global recovery. As the Russian economy gradually adapts to an adverse external environment marked by lower oil prices and ongoing economic sanctions, the focus of its economic adjustment is now shifting to fiscal and financial sector challenges. At the same time, the policy space for Russia’s continued adjustment has shrunk in light of depleting fiscal buffers.

Russia’s longer-term growth path will depend on the strength of its structural reforms. Economic reforms designed to bolster investor confidence could greatly enhance Russia’s long-term growth prospects. Administrative barriers to doing business, high transportation and logistics costs, and the perception of an uneven playing field all discourage investment, particularly in the non-resource sectors.

Last Updated: Apr 08, 2016

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 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 IBRD RAS and analytical work. The World Bank Group is in constant search of innovative engagement opportunities and instruments, such as a mechanism to fund analytical work and technical assistance to poorer regions.

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

Last Updated: Apr 08, 2016

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 nine projects with a total current commitment of US$636.1 million (as of March 2016). 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 the federal government.

Portfolio quality is satisfactory. Most projects hold satisfactory ratings for progress toward development objectives. Two projects are at risk with moderately unsatisfactory and unsatisfactory ratings for implementation progress. These projects, namely, the Second National Hydromet Modernization Project and the Forest Fire Response Management Project, are being closely monitored, as there are significant delays in implementation, putting 15.7 percent of the commitments at risk. The Housing and Communal Services Project went through restructuring and has been extended. The current disbursement ratio for FY16 is 14.7 percent, and the average project age is 6.42 years.

Advisory Services and Analytics (ASA) remain an important part of the World Bank’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.”

Demand has grown rapidly for RAS. Since 2007, the World Bank has entered into more than 80 RAS Agreements. These 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; 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 to build and keep a lead in global knowledge provision. 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.

Last Updated: Apr 08, 2016


LENDING

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

*Amounts include IBRD and IDA commitments