World Bank notes Russia’s fairly good performance amid pandemic
Last year, Russia’s economy performed better compared to many countries, and in 2021, Russian GDP may grow by as much as 3,2%, considers the World Bank. The analysts propose improving the cost-effectiveness of social safety nets to better counteract poverty.
Russia’s economic recovery gathers pace, according to a new report of the World Bank. The international financial group expects the country’s GDP to grow by 3,2% in 2021 and 2022 and by 2,3% in 2023. According to the bank’s baseline scenario, which assumes a gradual decline in new COVID-19 infections, the improvement will be led by household consumption and public investment and supported by global economic recovery, higher oil prices and soft domestic monetary conditions.
“In 2020, Russia’s GDP contracted by 3% compared to contractions of 3,8% in the world economy and 5,4% in advanced economies,” commented Lead Economist for the World Bank in Russia Apurva Sanghi. He attributed the country’s fairly good performance to significant macro-fiscal stabilisation efforts made in recent years. The economist also named enhanced regulation and supervision in the banking sector, fortified capital and liquidity buffers, relatively soft restrictions for industrial and construction sectors, closer ties to a relatively fast-growing China, a relatively small services sector and a large public sector that buffered against unemployment among other contributing factors.
Employment in Russia is still below pre-pandemic levels, but the labour market began showing some signs of improvement by the end of last year, reads the report adding that the national unemployment rate, which peaked in August 2020 at 6,4%, amounted to 5,4% in March 2021. Average real wages increased in 2020 compared to the previous year, but this growth wasn’t uniform. Real wages rose in agriculture, telecommunications and healthcare but declined in many other sectors, primarily those that suffered the largest employment losses, such as hospitality services, construction, culture/sports/leisure activities and commerce. Moreover, according to the report, increases in real wages do not compensate for a decline in per-capita disposable income.
The report pays special attention to the cost-efficiency of Russia’s fight against poverty. The country has a national goal to halve poverty to 6,6% by 2030. Meanwhile, its social safety-net system reduces poverty at a high cost. State spending on social assistance programmes amounts to $30 billion per year (over 3% of GDP), which is more than three times greater than the combined income deficit of all poor families in the country before transfers. The World Bank’s Country Director for Russia Renaud Seligmann pointed out that Russia’s expenditure on social safety nets was larger than in Europe and Central Asia and assumed that “introducing a national, targeted programme that provides financial assistance to people falling below a poverty threshold could be key to cost-effective poverty reduction”. “In our view, implementing such a programme could reduce poverty faster and at a lower fiscal cost,” he added.