Russia overview

Cityscape in Russia

The EBRD is currently only supporting its existing projects and clients in Russia. The Bank’s operational approach, following guidance from a majority of Directors, is currently not to undertake any new business in the country.

In Russia we focus on:

Diversifying the economy: private enterprises and private financial institutions that support non-resource sector growth are key for diversification. About 90 per cent of EBRD investments in Russia in 2013 were in the private sector.

Investing in and setting standards for modernisation and innovation: focus is needed on enterprises that innovate, introduce modern new technologies, or upgrade to international standards, particularly with regard to corporate governance, transparency, energy efficiency, inclusion and gender issues. Improving energy efficiency is a key aspect of modernisation across various sectors of the economy.

Supporting privatisation and private sector development: the role of the private sector in the economy needs to increase through strengthening existing private operators; increasing the MSME share in the economy; pursuing transparent and competitive majority privatisation strategies for state-owned companies; conducting policy dialogue on privatisation; and promoting PPPs as a tool to attract more private sector investment into state-dominated sectors.              

Increasing economic opportunities in Russian regions: Russia is a federal state whose component regions vary widely in terms of per capita income, unemployment and investment. To promote regional development, it is necessary to support projects and reforms that advance transition in regions that are less advanced than Moscow and St. Petersburg and that are committed to improving the investment climate.

As well as being a country where the EBRD works, Russia is also an EBRD donor. In 2013 the Russian government established its first bilateral Technical Cooperation fund, worth €40 million and covering a five-year programme, in support of the EBRD’s core operations in the country. Almost 50 per cent of the funding is earmarked for the development of projects in transport and infrastructure – with the rest split between energy efficiency, agribusiness and SMEs. At the beginning of 2014 the Advice for Small Business programme benefited from Russian funding. Russia also remains the biggest donor to the NDEP environmental window with total contributions totalling €60 million. In 2015 Russia paid €5 million to the NDEP Support Fund.

The EBRD’s latest Russia strategy was adopted on 18 December 2012

Current EBRD forecast for Russia’s Real GDP Growth in 2017 1.8%

Current EBRD forecast for Russia’s Real GDP Growth in 2018 1.7%

After falling by 0.2 per cent in 2016, the Russian economy has returned to growth in 2017. In the first half of the year, GDP rose by 1.5 per cent year-on-year on the back of stronger activity in the trade, mining and transport sectors. On the expenditure side, the recovery was driven by domestic demand, i.e., consumption and investment, while the contribution of net exports turned negative as imports outpaced exports.

Private sector capital outflows in January-September 2017 reached the 2016 annual level (around US$ 20 billion), this time driven by banking sector outflows. In the same period, Eurobond issuances increased almost threefold, to US$ 29 billion, while syndicated borrowing declined by one-third, to US$ 9.4 billion.

With inflation falling, monetary policy has been easing further. Over the past six months, the CBR cut the key policy rate by a cumulative 1.25 percentage points, to 8.5 per cent in September 2017. Disinflation was supported by the strengthening rouble, a strong food harvest and base effects. At 3 per cent year-on-year, inflation in September 2017 was below the CBR target (4 per cent). Meanwhile, fiscal policy has tightened with the deficit falling to 2.5 per cent of GDP in 2017, from 3.7 per cent a year before. The budgetary plans for 2017-19 set out fiscal consolidation at one percentage point of GDP annually, but the pace is somewhat uncertain due to both upside (the government’s conservative oil price assumption of US$ 40 per barrel) and downside risks (the need to sustain social spending in the run-up to the presidential elections). In addition, in July 2017 the new fiscal rule was adopted, with the intention to reduce the effect of oil prices on the federal budget.

Financial stability is supported by the central bank’s policy of closing weakly performing banks with poor corporate governance. In September 2017 there were 574 banks operating in Russia, around 380 fewer than in mid-2013. The new bank resolution framework is effective from mid-June 2017, entrusting the Central Bank of Russia to operate the framework instead of the Deposit Insurance Agency (DIA). At 6.1 per cent in the corporate sector and 7.5 per cent in the household sector in September 2017, the non-performing loans ratios remain moderate compared with the average rates in central and south-eastern Europe.

Economic growth in 2017 is expected to be at 1.8 per cent and stay at similar level (1.7 per cent) in 2018. Growth will be led by the recovery in consumption and investment, and also supported by higher oil prices and macroeconomic stabilisation. The contribution of net exports in 2017 is likely to be negative, given the strong catch-up in imports that will most likely outpace the export growth. The main risks for the projection come from the oil price, lack of business environment reforms to support investment, geopolitical tensions and the prolongation of sanctions. Without significant reforms, long-term growth may remain at around 1 to 2 per cent annually due to low investments, outdated production capacities and less favourable internal structural factors such as weak demographics, outdated infrastructure and unfavourable institutional characteristics of the economy.

Russia in the EBRD’s 2017-18 Transition Report