Overview

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Context
Strategy
Economy

Country Context
The Russian Federation 2020
Population, million 144.3
GDP, current US$ billion
1,481.9
Life Expectancy at birth, years (2018) 72.7
In recent years, Russia has undertaken significant macro-fiscal stabilization efforts, resulting in an improved fiscal position (including a sizable accumulation of fiscal and reserve buffers), reduced exposure to oil price volatility, and a lower public debt burden.
A massive banking sector cleanup, together with enhanced regulation and supervision, fortified capital and liquidity buffers. These efforts have strengthened Russia’s ability to respond to the pandemic’s adverse economic shocks, allowing the Government to provide a substantial countercyclical fiscal stimulus (about 4.5 percent of GDP) and an accommodative monetary policy (the key rate was lowered by 200 basis points between February and July 2020).
Russia’s potential growth has been trending downward since the global financial crisis. Although near-term recovery will be contingent upon stemming the pandemic, longer-term economic prospects will depend on boosting potential growth by promoting economic diversification, reducing the state’s economic footprint, leveling the playing field for the private sector, improving governance - particularly of state-owned enterprises - and taking advantage of shifting global value chains.
A green transition could pose significant challenges for the Russian economy unless the Government undertakes preemptive steps toward decarbonization. The downward trajectory in poverty rates since 2010 was interrupted by the shocks of 2014-15. Since then, poverty has again declined, reaching 12.3 percent in 2019 (using the national measure). The official poverty rate increased to 13.3 percent in the third quarter of 2020 from 13.1 percent in the same period last year, reflecting the coronavirus pandemic’s impact. Emergency social protection measures prevented an even greater increase in the poverty rate.
Russia and the World Bank
The Russian Federation became a full member of the World Bank in 1992. In June 1993, the Bank organized a multilateral meeting in Paris to discuss the most critical reforms in Russia and coordinate related external assistance. The World Bank provided more than $16 billion in loans to support structural transformation in Russia. While demand for financing has fluctuated over the years, World Bank knowledge and technical assistance has been consistently at the core of our country engagement focusing on social and economic development of Russia and on addressing global challenges of fighting poverty, debt relief for the poorest countries and environmental protection.
Drawing on its global experience and deep local knowledge, the World Bank works in partnership with federal, regional and local governments to provide hands-on technical assistance for projects and programs. World Bank experts have in-depth knowledge and extensive global experience; their daily work is based on the principles of building strong partnerships with focus on results for development.
Activities planned, financed, supported or implemented by the World Bank may be low budget or large scale; comprehensive or focused on addressing a particular problem; include development of a conceptual framework for a program or project, development of its design, as well as implementation support, coordination, and monitoring and evaluation.

Last Updated: Apr 06, 2021
Strategy
Number of active projects 4
IBRD net commitments $370 million
The World Bank conducts research and analysis and provides policy advice and capacity development on topics critical to Russia’s economic and social development at the federal and regional levels. World Bank support focuses on such areas as the investment climate, green finance, health care, education (including early childhood development and skills), social protection, and community-driven development and participatory budgeting. Ongoing projects support the improvement of basic service delivery at the local level, increased financial literacy, and the protection of the environment.
Russia is an important development partner for the World Bank Group. The Bank’s partnership with the Russian Government helps bring the country’s knowledge and financial resources to benefit other countries around the world. Since 2007, Russia has pledged $896 million to the International Development Association (IDA).
Russia has also contributed $279 million across 24 World Bank–administered trust funds in support of education, small and medium-sized enterprise (SME) development, public financial management, and other development areas in countries across Europe and Central Asia (ECA), Africa, and the Middle East.
Russia has also pledged $438 million to eight Financial Intermediary Funds that tackle global development challenges, such as HIV/AIDS, tuberculosis and malaria, debt relief, environmental protection, women’s entrepreneurship, and governance and public institutions in Middle East and North African countries in transition.
The latest pledges include $9 million to the ECA Regional Public Finance Management (ECA PFM) Trust Fund program and $3 million to the Public Expenditure Management and Peer-Assisted Learning program (PEMPAL) (October 2019).
KEY ENGAGEMENT
The World Bank’s Advisory Services and Analytics program is organized under two broad themes:
Growth and competitiveness, which focuses on macroeconomic and fiscal management, labor market informality, productivity, the investment climate, SME development, trade integration, agriculture, and the digital economy.
Human capital, poverty, and shared prosperity, which focuses on education, including early childhood development, integrated health care, and social protection.
Many activities are delivered as Reimbursable Advisory Services (RASs). The RAS portfolio includes activities on agriculture, food security, the investment climate, statistics, education and skills, social protection, and community-driven development and participatory budgeting.
The knowledge program is delivering results. The Local Initiatives Support Program (LISP) has helped boost citizen participation in municipal decision making. Citizens, working together with municipal authorities, identify and prioritize small-scale infrastructure projects that address specific community needs. This has led to the more effective use of local budgets and a more rapid implementation of projects.
The LISP started in the region of Stavropol krai 14 years ago. Today, LISP is a national program, covering about one-third of Russia’s 80-plus regions. More than 12,000 participatory projects have been implemented, benefiting over 7.5 million people. On average, 20 percent of all projects has been co-financed from regional business and local community resources.

Last Updated: Apr 06, 2021
Recent Economic Developments
GDP contracted sharply in the second quarter of 2020, declining by 10.9 percent quarter-on-quarter (qoq), seasonally adjusted annual rate (saar). Economic activity only partly recovered in the third quarter (rising by 2.8 percent qoq, saar), as mobility restrictions eased following a decline in COVID-19 cases and households and companies benefited from government support, including countercyclical fiscal, monetary, macroprudential, and regulatory measures.
Momentum slowed again in the fourth quarter as the pandemic’s second wave swept across Russia and the globe. Pandemic mitigation measures heavily impacted the services sectors, with the transportation and hotels and catering sectors registering double-digit contractions.
The 2020 extension of the OPEC+ agreement weighed on mineral resource extraction, which contributed 1 percentage point to GDP growth. Lower energy export receipts, financial market volatility, and increased geopolitical risks fueled a sharp increase in capital outflows in 2020 ($47.8 billion, up from $22.1 billion in 2019), driving a real effective exchange rate depreciation. The sharp contraction in imports due to the depreciation, a decline in real income, and impediments to outward tourism failed to fully offset the drop in energy exports.
The general government fiscal deficit widened to 4.0 percent of GDP in 2020 (compared to a surplus of 1.9 percent of GDP in 2019), driven by pandemic response spending and the need for economic support measures amid lower energy revenues. The unemployment rate stood at 5.7 percent in February 2021, down from its peak of 6.4 percent in August but still above the 4.6 percent rate recorded in February 2020.
Since the end of 2020, 12-month consumer price inflation has exceeded the target of the Central Bank of Russia (CBR) of 4 percent, owing partly to higher global food prices and the deprecation of the ruble. In February 2021, inflation reached 5.7 percent. Elevated inflationary pressure, coupled with a rebound in domestic demand, prompted the CBR to raise its key interest rate by 25 basis points to 4.5 percent in March.
LEARN MORE: Russia Monthly Economic Developments
ECONOMIC OUTLOOK
Assuming that no third wave of coronavirus infections occurs in Russia, consumer and business confidence are expected to improve, paving the way for a gradual economic rebound. GDP growth is forecast at 2.9 percent in 2021 and 3.2 percent in 2022. The general government deficit is expected to improve, narrowing to about 2.0 percent of GDP in 2021 and turning into a 0.5 percent of GDP surplus in 2022.
Following 2020’s stronger fiscal impulse, the 2021–22 fiscal consolidation in Russia will be deeper than in other emerging markets and will become a drag on growth. Given its relatively low public debt, sizable macro-fiscal buffers, and expected persistent negative output gap, Russia has the fiscal space for a more gradual consolidation, allowing for further increases in social spending and support to regions.
In line with the OPEC+ agreement, oil production restrictions will fall away in 2021–22, supporting growth in oil output and export volumes. Twelve-month consumer price inflation is projected to average 4.3 percent in 2021 before stabilizing around the CBR’s target of 4 percent in 2022–23.
In 2021, the poverty rate (using the upper-middle-income poverty line of $5.5 per day) is expected to decline to below 2020 levels as the economy rebounds. However, it will remain above pre-pandemic levels until 2022.
The outlook faces substantial downside risks. Lower-than-expected vaccine effectiveness or vaccine hesitancy could delay the economic recovery, as could new sanctions. Banks could face deteriorating asset quality, profitability, and capitalization, including from the country’s overheated mortgage market. The CBR has extended the forbearance on impairment recognition until mid-2021. Although these measures should allow banks to accumulate profits to increase loan loss provisioning, they will also delay the realization of unavoidable and costly losses.
LEARN MORE: Russia Economic Reports

Last Updated: Apr 06, 2021