Behind Russia’s High Income

Sub: Economy

Sec: National Income

Recent Upgrade by the World Bank

Russia’s Status: Upgraded from an ‘upper-middle income’ to a ‘high-income’ country.
Previous Status: Last had high-income status in 2014.
Determining Factors:
- Growth in Trade: +6.8%
- Financial Sector: +8.7%
- Construction: +6.6%
- Real GDP: Increased by 3.6%
- Nominal GDP: Increased by 10.9%

Economic Context

Impact of War Economy: The growth is attributed to a significant increase in military-related activities.
IMF Assessment: Signs of overheating in the Russian economy.

Classification Criteria

World Bank’s Classification: Based on per-capita gross national income (GNI) in US dollars.
Threshold for High-Income: $14,005 or more.
Russia’s Per-Capita GNI: $14,250.
Other New High-Income Countries: Bulgaria ($14,460) and Palau ($14,250).

Ukraine’s Economic Upgrade

New Status: From lower-middle-income to upper-middle-income.
Growth Factors:
- Resumption of Economic Activity: Especially in western and northern parts of Ukraine.
- Real GDP Growth: 5.3% in 2023.
- Population Decline: More than 15% since the invasion.
- Construction Activity: 24.6% increase.
- Investment Spending: 52.9% increase.

Global Context

2023 Income Levels:
- South Asia: Only 13% low-income.
- Middle East and North Africa: 10% low-income.
- Latin America and the Caribbean: 44% high-income.
- Europe and Central Asia: 69% high-income.

Resilience of Russia’s Economy

Sanctions Impact: Russia under more individual sanctions than Iran, Cuba, and North Korea combined.
Recovery Factors:
- Fiscal Stimulus: Including military spending and credit expansion.
- Trade Diversion: Shift to China, India, Türkiye, Central Asia, and the South Caucasus.
- Currency Shift: Trade in sanctioning countries’ currencies fell from 80% in 2021 to less than 30% in 2023.
- Job Market: Strong with record low unemployment and rising wages.
- Consumer Spending: Propelled by a strong labor market.

Why Sanctions Haven’t Worked

Oil Sector:
- Sanctions Design: Not as tight as those on Venezuela or Iran.
- Global Oil Prices: Elevated prices and reduced discount on Russian oil.
- Export Volumes: Steady with increased exports to China and India.
Investments:
- Corporate Investment: Recovered since 2022, contributing 4.5% to GDP growth.
- Manufacturing and Defense: Increased investments.
- Domestic Goods Substitution: Investments in new production facilities.
- Multinational Corporations: Some have stayed, anticipating an end to the war.
Consumption:
- Private Consumption: Recovered strongly, adding 2.9% to GDP growth.
- Government Spending: Fiscal impulse of 1.2% of GDP in 2023, with 7% of GDP on defense spending.

World Bank Group Country Classifications by Income Level

The World Bank classifies economies into four income groups based on Gross National Income (GNI) per capita.

The four income groups are:

Low-Income Countries (LICs)

GNI per Capita: $1,135 or less.
Characteristics: These countries often face significant challenges related to poverty, infrastructure, healthcare, and education. Economic growth is typically slow, and they rely heavily on agriculture and basic industries.

Lower-Middle-Income Countries (LMCs)

GNI per Capita: $1,136 to $4,465.
Characteristics: These countries are usually in a transitional phase, experiencing moderate economic growth. Industrialization is increasing, and there are improvements in infrastructure and education, but challenges remain in addressing widespread poverty and inequality.

Upper-Middle-Income Countries (UMCs)

GNI per Capita: $4,466 to $13,845.
Characteristics: These countries have more advanced industrial bases and diversified economies. They typically have better infrastructure, healthcare, and education systems, and a significant portion of their populations enjoys a higher standard of living. However, disparities in wealth distribution can still be a concern.

High-Income Countries (HICs)

GNI per Capita: $13,846 or more.
Characteristics: These countries have highly developed economies with strong industrial and service sectors. They offer high standards of living, advanced infrastructure, comprehensive healthcare, and education systems. Economic growth is often stable, though some high-income countries may face challenges such as aging populations and maintaining economic competitiveness.

Purpose and Utilization