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| Population: | 143.9 mln | | Population per sq. km: | 8.4 | | Population growth: | -0.16% | | Life expectancy: | 64.8 yrs | | Population below national poverty line (2002): | 19.6% | | GDP per capita (current US$): | 3,010 | | GDP (current US$): | 433,139 mln | | GDP Growth: | 7.3% | | Data from National Statistical Office and Staff estimates. |
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Overview | Focus of World Bank Assistance | Impact on the Ground | Challenges Ahead | Partners in Development | World Bank Lending
Overview
Buoyed by high oil prices, the Russian Federation's economic performance in 2003 and in the first half of 2004 has exceeded the most optimistic expectations. Since the economic collapse of 1998, output has increased by a cumulative 38 percent, and is expected to grow by more than 7 percent in 2004. Growth was driven by consumption demand during 2000-2002, with real disposable income increasing faster than the economy overall. In 2003 growth was accompanied by a substantial increase in domestic investment. Gross fixed capital formation increased by 12.9 percent and exceeded consumption growth (6.1 percent) for the first time since 2000. Nonetheless, while the benefits of rapid growth are visible, health indicators and life expectancy have failed to improve, and just under one fifth of the population still lives below the poverty line.
The stable political situation since 2000 has also contributed to economic growth and macroeconomic stability. In 2004, Russia recorded a federal budget surplus for the fourth year running, as well as a sizeable current account surplus. Major reforms have been undertaken from July 2001 onward, when the government began implementation of its Medium Term Program of Social and Economic Development for 2002-2004. Currently public administration reform, fiscal federalism reform, housing and communal services and other key reforms are under way. However, implementation remains difficult and many reforms are still in the early stages.
Although the structure of Russia's economy has changed dramatically over the last decade, it continues to be highly concentrated in several respects, and retains a number of features that differ from other economies in transition. First, the share of new enterprises (i.e. enterprises founded after the beginning of systemic reforms) and of small and medium enterprises is low by international comparison. Second, the economy still features large Soviet style production units, many of which are suffering losses. And third, a significant portion of the population (10 percent) still lives in economic and social isolation in the Far North and Far East.
Poverty and inequality are still major issues. Almost 30 million Russians live in poverty with children particularly at risk. Moreover, income disparities have grown over the last decade (the Gini coefficient was 0.37 in 2002). Although economic growth has been pro-poor in Russia so far, this growth needs to be more broadly - based to have a greater, and sustainable impact on poverty, with new jobs created in a rapidly developing small and medium enterprises sector.
Three main factors constrain further progress toward achieving sustainable growth: the economy's continued dependency on the natural resource sectors, including oil and gas; a weak system of financial intermediation; and continued dominance by unreformed natural monopolies. While barter and payment arrears have largely disappeared, the lack of effective financial intermediation continues to act as an impediment to further growth, as it imposes unduly high transaction costs on growth outside the natural resource sectors that are the key export earners. Focus of World Bank Assistance The Russian Federation joined the World Bank in 1992. The Bank's strategy for FY03-05 is to support the effective implementation of the Government's comprehensive reform program, to help mitigate risks to the sustainability of growth, and to extend the opportunities arising from the reform process more widely across the population. The Bank's Country Assistance Strategy (CAS) is organized around three central themes:
Improving the business environment and enhancing competition, as new business development is key to sustained growth and poverty reduction in Russia. Focal points include the removal of administrative barriers to business activity, restructuring priority sectors including infrastructure monopolies and agriculture, protecting property rights, ensuring the enforcement of contracts, improving corporate governance and financial intermediation, and strengthening Russia's role in the global knowledge economy.
Improving public sector management. Better governance and service delivery is key to improving business confidence, sustaining growth and reducing poverty. Critical elements in this area include strengthening and modernizing the civil service, the public administration and judicial systems, and improving public finances.
Mitigating social and environmental risks. Though overall trends in living standards have begun to improve following the renewal of economic growth, ensuring improved health and education has been more difficult, and significant social risks remain for certain segments of society. Key components include improving health care services and finance, improving educational services, mitigating income insecurity and vulnerability, and minimizing the risk of poverty, in addition to mitigating environmental risks and improving the environment.
These broad themes are consistent with the objectives of the Government's Medium Term Plan and are mirrored in the Government paper on cooperation with the Bank. The Country Assistance Strategy envisages an IBRD program of lending and guarantees supported by an extensive program of analytical work in support of the reform agenda.
For further details please see the World Bank's Country Assistance Strategy for Russia FY03-FY05. Impact on the Ground  People assisted to migrate from the Arctic North. Up to 25,000 people living in the extremely cold conditions of the Arctic North now have an opportunity to migrate to other regions, as a result of the Northern Restructuring pilot project. The first 1,600 families from the three Northern communities of Vorkuta, Susuman and Norilsk have already made their decision to leave. The project has also improved the financing and management of communal services in the northern regions, leading to savings in municipal budgets and improvements in the quality of services. In addition, the project has promoted the efficient use of energy in houses and public buildings.
 A Country Economic Memorandum was released in Moscow as part of an increasingly important Bank's analytical and advisory work that is carried out for the country. The Memorandum assesses the extent of structural change in the Russian Federation, and its contribution to long-term growth - a prerequisite for meeting the Government's ambitious economic objectives of doubling GDP by 2012 and cutting poverty in half by 2007. It is based on the findings of nine background studies that were carried out between May and December 2003, and included two workshops and several visits to Russia's regions by World Bank staff based in Moscow. The Memorandum looks into the structure of Russia's economy, demographics and international migration, composition of productivity changes, the critical impact of transfer pricing, job creation, as well as ownership and control of the largest Russian enterprises.
 Local Self-Governance and Civic Engagement in Rural Russia project, the first Japanese Social Development Grant-based project for Russia, to improve the lives of rural communities through better service delivery, expanded influence on budgetary decision making, and enhanced local economic development became effective in June 2004. 3 round tables in St. Petersburg, Rostov-on-Don, and Smolensk, helped connect rural administrators, government officials, and the donors community in a constructive discussion of the directions and working models for rural self-governance. Currently pilot regions for field activities are being selected and the Ministry of Economic Development and Trade is committed to expanding further effective pilot models of self-governance. An analytical report has been prepared in Russian and in English on outstanding issues in rural development and on effective examples of self-mobilization in Russia and other post-socialist countries, as well as a web-site devoted to relevant national and international experience in local self-governance.
 Administrative and civil service reforms being aided. A number of analytical reports have been prepared and published by the Bank. These include a summary of international experiences and approaches to public administration reform, and analysis of civil service reform in the country over the last ten years. A Russian-language public administration reform website has also been created. As a result, the Government's reform agenda is moving towards implementation.
Challenges Ahead Despite the country's strong economic performance since 1999, formidable challenges remain:
Addressing poverty. More than 30 million Russians still lives below the poverty line. With the largest number of the poor living in urban areas, and those in extreme poverty living mainly in the rural areas, policies that revitalize cities and address rural development are needed.
Diversifying the economy. Greater diversification of the economy is needed to address poverty and inequality. While growth has been steady, it has been uneven and poor regions and segments of the population have fallen further behind. Moreover, exports are largely commodity-based and investments remain concentrated in the natural resource sectors. High dependence of Russia's growth on prices for export commodities is undesirable in any case, but even more so in light of the goals of doubling GDP and reducing poverty in half. Success in achieving these goals would depend on scope and speed of diversification, both away from oil and gas, and deeper into Russia's regions.
Encouraging the growth of small and medium enterprises. Small and medium enterprise growth has been anemic and needs to be encouraged to ensure that growth is more broad-based.
Improving competitiveness. The weak system of financial intermediation, decaying transport infrastructure, continued dominance by unreformed natural monopolies, and delayed privatization of agricultural land must be tackled to improve the competitiveness of the economy.
Building human capital. Access to high quality education and health care is still limited, and there is a growing risk of an HIV epidemic. Building the country's human capital is an essential prerequisite for economic growth.
Improving governance. Institutional capacity remains weak. Governance is still a serious issue that needs to be addressed - not only corporate governance in the narrow sense of how commercial entities are created and run, but governance in the broader sense of drawing clear demarcation lines between the public and private sector, and setting rules for all parties on how to live within them.
Partners in Development World Bank Lending Since the Russian Federation joined the World Bank in 1992, the Bank has approved more than US$13 billion in loans for 59 operations. As of today, 24 of these operations are under implementation.
 For additional information on lending, please visit Projects For more information please contact:
In Moscow: Marina Vasilieva phone: + (7 - 095) 745 7000
E-mail: mvasilieva@worldbank.org Last update: July 2004 |
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