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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.

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Credit: IE

Russia’s economic resilience

  • In nominal terms, Russia ranks 72nd globally in per-capita GNI and 53rd 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.

Why sanctions didn’t work?

  • 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.

World Bank’s income rankings

  • 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“.

Improvement in Ukraine’s ranking

  • 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.
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