The world Bank described as two ways of “prosperity” of the Russian economy

Economists at the world Bank called two ways, which can ensure the growth of the Russian economy and “future prosperity”: this is, first, the recovery in productivity growth, and secondly, reforms aimed at developing human capital and improving access to public services. These findings are contained in the report “Russian Federation — a comprehensive diagnostic study of the economy: achieving inclusive economic growth” (have), which at the Gaidar forum on Thursday presented the Vice-President of the world Bank for Europe and Central Asia Cyril Muller and Deputy chief economist of the organization of the Ana Revenge.

A victim of its own success

The current model of the Russian state based on a strong influence of the authorities on the economic and social policy, as well as great political support, says the world Bank. However, this support may weaken in a slowing economy, as Russia risks becoming a “victim of its own success” due to the increased expectations of the population.

The potential for a “resumption of productivity growth”, first described by the world Bank of the way Russia has, however, we need to get rid of the restrictions that exist “at the level of the whole economy, enterprises and the individual”. They occur due to worn-out fixed capital and “the distortion of market and trade mechanisms,” in the country is difficult and expensive to move goods, it hinders the economy, indicates the WB. You can remedy the situation by attracting private capital, including through the mechanism of public-private partnerships (PPP). The current efforts of the authorities in this sphere is insufficient, they need to better assess the feasibility of projects and oversee them until their completion, analyze risks, and expand access to affordable long-term loans. Now part of business in Russia in infrastructure projects “is strongly limited by the weak competition, insufficient depth of domestic capital market, a fragmented and complicated system of law and the lack of professionals.”

Productivity growth and hinder restrictions in innovation at the enterprise level. Companies are in need of “capable management”, the appearance of which also requires additional investment. In addition, one of the most serious factors hindering the development of Russian companies — the lack of qualified personnel, the report said. Even though the Russian workers observed a “very high level of formal education”, it does not help to develop skills that potential employees employers demand.

Another obstacle is the decline of foreign direct investment (FDI) that occurred after the imposition of sanctions in 2014, that foreign investment contributed to the increase of competitiveness and export diversification into more high-tech products. This is now to diversify exports through FDI is difficult because of the external situation, and the authorities will cost a lot of efforts, improvement of the investment climate. One of the major problems, says the world Bank, the Russian company has also identified corruption, taxes and “burdensome requirements for licensing and operation”.

Economists describe two main approaches that we need to return productivity growth. The first is the alignment of conditions of competition, providing “market exit of unproductive firms-timers” and the emergence of new productive companies. Second — upgrade the capacity of companies, for example in the field of technology adoption. In General, Russia needs reforms that will help to overcome internal and external constraints, indicates the WB.

Human capital

The second way, described the world Bank — improve human capital. The main source of income for the poorest 40 per cent of citizens are the budget transfers and should be replaced by income from employment. In addition, “jobs moved to the more vulnerable informal sector”, indicates the world Bank. According to the Centre for socio-political monitoring of the Ranepa, just informal labor market consists of 30 million Russians, or 40.3% of the economically active population. Annually since 2009, the world Bank notes, the official number of liquidated jobs exceeded the number of new and thus there is no “credible evidence” that the official employment of citizens paid more than when working in the informal sector.

Among other problems — the aging of the economically active population, exacerbated by relatively low public spending on health. Savings, as well as ineffective allocation of expenditure in this area lead to higher costs for medicine among those patients who can afford it. The improvement could be achieved, with emphasis on primary care and prevention, says the world Bank. The volume of investment in education (4% of GDP compared with 5.3% on average in OECD countries), there are problems with access to quality education.

Russia should make more effective the expenditures on social assistance, report. Now comes the poor up to a minimal part of resource allocation (25% of the funds for the poorest 20%). In countries with targeted assistance to the same percentage of citizens gets 50% or more of the funds. The Bank also drew attention to the low pensions in Russia. But despite this, budget provision may be “insufficient given the growing pressure on the social security system,” the authors write. In addition, growing inequality may “undermine the social structure.”

Economists propose to engage in economic activity wider layers of the population and to increase productivity, to solve these problems. In particular, this can be done through the involvement of women and the increase in employment (that is, in fact, increase in the retirement age, which, in particular, insists Center for strategic research, preparing a program of reform in Russia).

The most important

The world Bank separately allocates the conditions without which the economic recovery in Russia is impossible. First of all we are talking about fiscal sustainability (the government has planned to reduce the budget deficit for the next three years, the minimum value it reaches in 2019, at 1.2% of GDP). “A significant tightening of the budget constraints taking place in recent times, exacerbating the difficulty of choosing between supporting incomes and increasing investment in human and physical capital,” the economists say. In past years, social spending was at the expense of investment in infrastructure and human capital, now send them to “the decision of the high priority and improving public investment management”. However, it should be accompanied by tax reform, says the world Bank.

Changes in the fiscal system at the end of last year, announced President Vladimir Putin saying that they should take effect from 2019, and the Minister of Finance Anton Siluanov explained that we are talking about increasing the luxury tax on harmful products and on reducing health insurance premiums for employers while increasing VAT.

The second condition — the quality management of natural resources; now it is, according to the world Bank, is irrational and inefficient. The welfare impact of the depletion of stocks and pollution of the environment and climate change “increases the vulnerability of the Russian economy to risks associated with weather conditions.”

And finally, another condition is that the efficiency of public administration. Agencies must “respond to the needs of business and citizens, and to uphold the principles of a legal state”. The government, says the world Bank, has achieved some success in the public administration, although progress was not uniform, and the ratings of Russia in this area remained below the world average. This is due to continuing problems with opening the business, entrepreneurial activity, investment and innovation, as well as with accountability to the population.