20 August 2003 07:31
Russia growth impressive, but too reliant on oil: World Bank
Five years after Russia's economic collapse, the country's impressive recovery figures still rely too
heavily on fickle international oil prices, the World Bank warned.
"Russia's economic performance once again exceeded even the most optimistic expectations" in the first
half of 2003, the World Bank said in a quarterly report released in Moscow.
But though "looking back in time, the economy is in better shape than at any other time since the beginning of
reform... growth remains vulnerable.
"Neither domestic consumption nor domestic investment are yet strong enough to guarantee a self-sustained
recovery," the report said Wednesday.
The Russian economy has bounced back with a vengeance following the August 1998 financial implosion that saw many
people's life saving's wiped out and foreign investors bitterly counting their losses following a debt default
and ruble devaluation.
But the World Bank stressed that much of the recent recovery has been due to a rising price of Russia's main
export oil -- with energy prices soaring due to continuing instability in the Middle East -- and not to structural
changes to the economy.
"The economy is in better shape than it has ever been since the beginning of reforms," Christof Ruehl, the
World Bank's chief economist in Russia, told reporters.
He reported that Russia's gross domestic product (GDP) grew 7.2 percent in the first six months of this year
compared with 4.3 percent over the same period in 2002.
But according to World Bank calculations, Russia's GDP would have grown by only 4.2 percent had oil prices not
climbed on concerns about the war in Iraq, Ruehl warned.
And despite a raft of other positive figures for Russia's economy for the first half of this year, much of the
investment to Russia was made into the burgeoning oil sector rather than small private businesses, Ruehl said.
Investment in Russia grew by 11.9 percent compared with an annualized 5.9-percent investment growth figure in the
same period in 2002.
Russian's real income grew 15.2 percent compared with 10.1 percent a year earlier.
And inflation slowed to 7.9 percent from 9.0 percent.
But Ruehl warned that much of this growth must be attributed to a 28-percent increase in global oil prices in the
first six months of this year from a year earlier.
"The dependence (on oil) has so far not diminished," he said.
"Investment in Russia increased quite dramatically... and direct investment on oil has not increased compared to
2002."
This week's report comes almost five years to the day that a financial crisis brought Russia's nascent
market economy to a screeching halt.
But today investors are back and the stock market is growing at a pace Wall Street can only envy. The main RTS index
has been flirting with post-1998 highs for weeks.
Meanwhile record-high reserves have filled government coffers and the nation's ratio of debt to GDP is better
than that of European powerhouse Germany, Ruehl said.
But he also warned that Russian President Vladimir Putin's goal of doubling growth figures over the next 10
years is unattainable unless serious structural economic reforms are achieved.
The World Bank chief offered a raft of suggestions that include:
-- breaking up giants like natural gas monolith Gazprom and the UES electricity monopoly, thus assuring competition
in the energy sector
-- financial sector reforms, including the closure of hundreds of insolvent banks, something that has been mulled for
years but achieved on only a small scale
-- deregulation of small and medium-sized businesses, as well as the introduction of equal and fair tax policies
-- public sector reforms that include a gradual end to housing and utility bill subsidies
Ruehl warned: "Domestic consumption is not strong enough to keep this growth rate going if oil prices
drop."
[CEIW] |
RUSSIA IN FACTS
