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 2018 1.5%

Current EBRD forecast for Russia’s Real GDP Growth in 2019 1.5%

After a two-year recession, Russia’s economy has returned to moderate growth. GDP grew by 1.5 per cent in 2017 and 1.6 per cent year-on-year in the first half of 2018. On the expenditure side, growth was primarily driven by recovering household consumption. Investment also saw a relatively solid recovery in 2017 (rising by over 4 per cent), boosted by the temporary increase in public investment related to the 2018 FIFA World Cup. However, investment growth in the first six months of 2018, while still positive, has subsided. Exports have continued to grow in 2018, supported by higher oil prices while import growth has slowed significantly from the year before. 

The recovery of oil prices was accompanied by the rouble’s 15 per cent appreciation against the US dollar in 2017, and a further rise in early 2018. However, foreign exchange interventions set by the new fiscal rule, together with the new round of US sanctions against Russia (which triggered a sell-off of Russian financial assets), have exerted downward pressure on the exchange rate since April 2018. In September 2018 the rouble was 16 per cent weaker than six months earlier. 

Rouble depreciation has been followed by increasing inflation. However, at 3.4 per cent in September 2018, the inflation rate is still below the central bank target (4.0 per cent). Still, perceiving heightened inflationary risks, the Central Bank of Russia (CBR) raised the key policy rate in September by 0.25 percentage points, to 7.5 per cent.

Recovering growth and oil prices have supported the fiscal position of the country. The budget balance shifted from a deficit of 1.5 per cent of GDP in 2017 to a surplus of over 3 per cent of GDP in the first half of 2018. The country has also embarked on tax and pension reform. In July 2018, the parliament approved a VAT rate hike (to 20 per cent, from 18 per cent) and the reform of oil sector taxation, providing for the gradual elimination of the oil export duty (from 30 per cent currently) and its replacement by a higher natural resource tax, shifting (and effectively widening) the tax base from oil exports to oil production. The pension reform envisages a hike in the retirement age.

The CBR has continued to close banks that have weak performance and poor corporate governance. In August 2018, there were around 510 banks in Russia, around 445 fewer than in mid-2013. As a result of bank closures and new resolution rules from mid-2017, the share of state-controlled banks (including those under rehabilitation) in total bank assets was over 70 per cent at the beginning of 2018, up from around 50 per cent in 2013. 

The growth rate of Russian economy in 2018 and 2019 is expected to stay at the same level as in 2017 (1.5 per cent). It will be driven by recovering private consumption and investments, and supported by higher oil prices, with a negative effect from the US and EU sanctions. Without significant reforms, however, Russia’s long-term economic growth may remain stuck at around 1 to 2 per cent annually due to outdated production capacities and low investments, as well as unfavourable internal structural factors (weak demographics, obsolete infrastructure and discouraging institutional characteristics of the economy).

Russia in the EBRD’s 2018-19 Transition Report