Russia’s ‘high income’ rating

Context (IE): The World Bank has upgraded Russia from an ‘upper-middle income’ country to a ‘high-income’ one, a status it last had in 2014.

Credit: IE

Russia’s economic resilience

In nominal terms, Russia ranks 72^nd globally in per-capita GNI and 53^rd in purchasing power parity.
The increase in real (3.6%) and nominal (10.9%) GDP was caused by growth in trade (+6.8%), the financial sector (+8.7%), and construction (+6.6%).
World Bank suggested that economic activity in Russia was influenced by a large increase in military-related activity in 2023.

Oil and gas exports: Sanctions on Russia are not as stringent as they were on Iran or Venezuela. Russia’s fossil fuel exports to Western Europe have fallen, but export volumes have remained relatively steady.
Investment: It has recovered from the drop in 2022, adding an estimated 4.5 percentage points to the growth in GDP in 2023, mainly due to:
- Increased resources flowing to the country’s defence and manufacturing sectors.
- Domestic goods are substituting some imports, resulting in investments in new production facilities.
- Some MNCs have stayed back, hoping the war will end and sanctions will be lifted.
Consumption: Recovery in private consumption added 2.9 percentage points to GDP growth driven by buoyant credit and a strong labour market (unemployment rate only 3%).
- Monetary incentives for military recruitment have let consumers carry on with their spending.
Government spending: Fiscal impulse estimated at 1.2 percentage points of GDP in 2023. Defence spending in Russia has been ramped up to an estimated 7% of GDP.
Sanction manoeuvre: Learning from past sanctions, Russian policymakers have learned to manoeuvre around these punitive measures.
Central Bank role: Hawkish monetary policies of the Russian central bank also stimulated the economy.

The World Bank classifies economies into four groups based on per-capita gross national income (GNI) in US dollars: low, lower-middle, upper-middle, and high.
Criteria for high-income countries: $14,005 or more per person.
Russia, Bulgaria and Palau upgraded their status to “high-income countries“.

Ukraine improved its status from a lower-middle-income country to an upper-middle-income country.
However, this was purely because of the base effect and a resumption of economic activity in the country’s western and northern parts, partly due to the war.