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 1.2%

Current EBRD forecast for Russia’s Real GDP Growth in 2018 1.4%

After contracting by 2.8 per cent in 2015, the Russian economy experienced another year of recession in 2016. The contraction in 2015 was milder than initially estimated and the output drop in 2016 was smaller than expected (0.2 per cent) owing to a methodological change implemented by Rosstat, the statistics agency.

Consumption and investment continued falling though to a lesser extent than in 2015, given the recovery in real wages. Investment activity remains constrained by economic uncertainty and relatively high financing costs. The contribution of net exports to GDP growth stayed positive as imports continued to fall in 2016 albeit at a slower pace than in 2015.

Private sector capital outflows continued in 2016 (around US$ 20 billion), but at a significantly slower pace than in 2014 (US$ 152 billion) and 2015 (US$ 58 billion). Eurobond issuances and syndicated borrowing (close to US$ 32 billion in 2016 and US$ 1.75 billion sovereign borrowing vs. US$ 12 billion in the whole of 2015) increased significantly but still remain well below pre-2014 levels.

Monetary policy has been cautious, with the central bank keeping its hard-earned credibility by supporting disinflation and avoiding excessive exchange rate volatility. Weak demand and base effects have supported disinflation; the annual change in the consumer price index dropped to 4.3 per cent in March 2017 (from a peak of 16.9 per cent in March 2015), coming close to the Bank of Russia’s target of 4.0 per cent. Meanwhile, fiscal policy has acted counter-cyclically with the general government deficit surging to 3.7 per cent of GDP in 2016, from 1.1 per cent in 2014. Although budgetary plans for 2017-2019 set out fiscal consolidation at 1.0 percentage point of GDP annually, its pace is somewhat uncertain due to the government’s conservative oil price assumption of US$ 40 per barrel on the one hand (upside risk) and need to sustain social spending in the run-up to the elections on the other (downside risk). The new fiscal rule, still under discussion and scheduled to be in effect from 2019, is supposed to reduce the effect of oil prices on the federal budget.       

Financial stability is supported by the central bank’s policy of closing weaker banks. Household loan growth turned positive only in the last quarter of 2016, while NPLs have increased in both the corporate (6.2 per cent) and the household sector (8.2 per cent) as of February 2017, but are still moderate compared to average rates in CESEE.

Domestic demand remained weak in 2016, but recovering household income and the stronger rouble may reduce the trade surplus and support imports. Increasing oil prices will underpin the economic recovery. In 2017 and 2018 growth is expected to pick up to 1.2 and 1.4 per cent, respectively, on the back of higher oil prices, recovering private consumption and investments. The main risks for the projection come from the oil price developments, lack of business environment reforms supporting investment, geopolitical tensions and prolongation of sanctions. Without significant reforms, long-term growth will remain at around 1 to 2 per cent annually due to low investment.   

Russia in the EBRD’s 2016-17 Transition Report