The Systematic Country Diagnostic for the Russian Federation is the World Bank Group’s comprehensive analysis of economic conditions, challenges and constraints facing the country in the short- and medium- term period. It identifies general causal chains related to Russia’s interlinked development challenges and opportunities, and proposes a set of broad policy priorities and actions.
The Systematic Country Diagnostic has been prepared by the World Bank Group in close consultations with our many partners, including federal and regional governments, academia and think tanks, the business community, civil society and other stakeholders.
Drawing on a large pool of available research and data from across different sectors of the economy, the Diagnostic identifies two pathways and three requisites where progress is critical for Russia to get back on the path toward sustainable growth and expansion of shared prosperity for people in cities and villages across this vast country.
Increasing Productivity for Diversified Growth
The first pathway identifies areas where new policies are necessary to achieve a recovery in productivity, focusing on the regulatory regime for businesses, infrastructure and connectivity, constraints on innovation by firms, and skills development for individuals. Russia has substantial potential to revive productivity growth by removing economy-wide, firm- and individual-level constraints on it.
Economy-wide productivity constraints include remaining investment climate bottlenecks, market and trade distortions, eroding physical capital, and connectivity deficiencies. Firm-level productivity constraints are associated with limited innovation activity, as well as constraints on individual productivity – with low supply of complementary skills.
Private businesses in Russia consider the lack of skills, especially social and behavioral skills, as well as those related to problem-solving and creativity, to be one of the most severe constraints on their expansion and growth. Despite the very high level of formal education of Russian workers, the current quality and content of education does not develop the skills demanded by the labor market. There is a growing skills gap as students progress through the Russian education system, which widens further as they enter the labor market.
Deepening Human Capital Gains and Improving Access to Services
The second pathway identifies the main areas for policy reforms to reduce further vulnerability, by deepening human capital gains and improving access to public services. The analysis identifies channels through which the labor market can again become a source of raising incomes of the vulnerable part of the population, by improving health and education services and strengthening the poverty impact and sustainability of Russia’s social protection system.
Investment in human capital and complementary labor market reforms are essential for increasing the equality of opportunity. While some health-related indicators have improved in Russia in recent years, life expectancy - especially for males - is low and national averages cloak large differences in health outcomes between regions and socioeconomic groups.
The challenge for the complex social protection system is to improve efficiency and sustainability, focusing social assistance programs more on the most vulnerable segments of Russia’s population. While pensions have had a larger impact than social assistance on the alleviation of poverty, the adequacy of pensions is low, and the fiscal position of the pension system is aggravated by a relatively low statutory retirement age (55 for women and 60 for men).
Three Requisites for Sustainability
Sustainable advances along both pathways are conditional on progress in improving governance, maintaining fiscal sustainability, and better managing environmental and natural resources. Measures to improve control over corruption, enhance regulatory quality, strengthen corporate governance, and improve accountability and capacity in public service delivery are essential elements of a better governance environment.
In the current challenging fiscal landscape, it is urgent to put in place a strategy for managing fiscal risks and improving the efficiency and effectiveness of spending in the short- and medium-term at national, regional and local levels. The sustainability of overall progress also requires safeguarding Russia’s vast natural resource wealth and the environment for future generations. Shifting the growth model to be less dependent on natural resources is important.