World Bank urges Russia to diversify

World BankRussia needs to improve its investment climate, diversify its oil-dependent economy and boost productivity growth if it wants to catch up with the global economy, the World Bank urged Moscow this week, at the same time as forecasting that the country is on the verge of bouncing back from its three-year economic crisis. 
Two reports published by the bank in quick succession will have given economists in the Kremlin some cheer but also food for thought. While Global Economic Prospects January 2017 predicts that a Russian recovery will be a major driver of a 2.4% and average 2.9% growth in the collective economies of Europe and Central Asia in 2017 and 2018-9 respectively, its Pathways to Inclusive Growth report warns that Russia’s competitiveness is deteriorating after a decade of strong oil-driven growth.
Russians in streetTogether with Russia’s high vulnerability to trade shocks, it argues that this raises questions about the country’s ability to retain the social and economic advances made since President Vladimir Putin came to power.
“The recent crisis exposed the vulnerability of Russia’s economy and raised questions about the sustainability of past achievements in boosting shared prosperity,” it states, before suggesting that a combination of weak oil prices and financial sanctions will make it increasingly hard for the Russian authorities to find “a trade-off between social liabilities and fiscal sustainability.”
The Pathways report was presented at the 2017 Gaidar Forum in Moscow and stresses that Russia must revive its productivity by removing constraints such as rules favouring incumbent market players, non-tariff import barriers and regulations stifling competition, as well as developing its “feeble” financial market.
These measures would enable productive firms enter the market and allocate factors of production more efficiently and boost jobs and income for the bottom 40% of the Russian population
Poor Russian woman“It is vital that Russia start now, before inequalities and vulnerabilities worsen under the pressing fiscal challenges resulting from lower commodity prices, before demographic changes grow to represent too big a strain on labor market demands and fiscal resources, and before the opportunity to reinforce the results of a decade of successful growth fades away.” 

Source: reuters