Russia’s economy yet has no potential for a 10% annual growth

On April 15, 2014, The Ministry of Economic Development of Russia presented its so-called draft version of a mid-term projection of the economic development in Russia including forecast parameters   for the implementation until 2017 of   the Presidential Decrees issued in May 2014.


As a reminder, Vladimir Putin signed a few presidential decrees in May 2014 after his inauguration as President of Russia in 2012. The decrees determine a plan of socio-economic development of the Russian Federation. Furthermore, Vladimir Putin noted in his regular Address to the Federal Assembly in December 2013 that “changes to the economic situation give no reason to say that the country is lacking resources for the implementation of the presidential decrees”. In other words, these decrees have to be implemented whatever the economic situation in the country is, which is set forth in a new forecast of the Ministry of Economic Development.


Therefore, in accordance with the new, “overoptimistic” scenario of the economic development in the Russian Federation, economic growth is expected to reach 2.7% in 2014, 9.8% in 2015 year on year. To be able to implement the forecast, fixed capital investment should increase 5% not later than in 2014 and 31% in 2015. The growth equals to Rb 6 trillion in nominal terms (i.e. approx. 8.6% of GDP), or the total amount of resources which the Russia’s sovereign funds are having for the moment (see  Fig. 1).



billions of rubles             billions of US dollars (right scale)

Data source: Russia’s Ministry of Finance.


Fig. 1. Total amount of resources of the Reserve Fund and the National Welfare Fund, billions of rubles and US dollars, 2008–2014


We share the expect community’s opinion that the figures projected by the Ministry of Economic Development cause surprise, at least, against the backdrop of deteriorating investment climate, enormous capital outflow, and lack of fundamental growth factors.


Any investment spike seems to be unrealistic under the current circumstances. At the same time, the Central Bank of Russia has reported that net capital outflow from the Russian economy amounted to $50,6bn in the first quarter alone, doubling over the value recorded in the corresponding period of previous year; total capital outflow is anticipated to reach up to $100bn in 2014. Russian economy is unlikely to become more appealing for investors given the current political events.


Regarding spending of the resources of the sovereign funds in favor of Russia’s “economic miracle”, the Ministry of Finance of Russia can hardly support such a decision, especially against the backdrop of unstable budget situation and strong dependence of budget revenues on oil prices which by 2019 may drop from current $108 to $91 per barrel, as the IMF shows in its projections (see  Fig. 2).




* IMF’s forecast.

Data source: IMF, World Economic Outlook database, April 2014.

Fig. 2. Brent crude oil prices in 2000–2019, $ per barrel.


At the same time, the Ministry of Economic Development pointed to the fact that such an “overoptimistic” forecast isn’t an action plan, but a proposal which, according to A. Klepach, “shows what should happen to make us able to implement the presidential decrees”. Nonetheless, in our opinion, it would be inappropriate to provide the community with such odd and inconsistent figures, even if it refers to the implementation of the presidential decrees. Any figure or indicator should be based on a clear-cut logic covering both the current economic situation and potential for economic growth in the future. Additionally, all potential impacts of the implementation of every measure should be analyzed. There is yet no potential to be seen, as repeatedly highlighted, for a 10% economic growth in Russia in the foreseeable future. Moreover, potential effects of actions aimed at fulfilling this indicator may be found to be extremely painful.


Maria Kazakova, Ph.D. in Economics, Head of Economic Development Department, Deputy Head of International Center for Budget Sustainability Study