- Russia’s economy, boosted by military activity, is now classified as high-income by the World Bank.
- Russia’s GDP grew 3.6% in 2023, with trade and financial sectors rebounding.
- The World Bank also upgraded Bulgaria and Palau, while the West Bank and Gaza were downgraded.
- South Asia: From 100% low-income countries in 1987 to just 13% in 2023.
The World Bank Group categorizes global economies into four income tiers: low, lower-middle, upper-middle, and high. These classifications are revised annually in July, based on the previous year’s Gross National Income (GNI) per capita. This system aims to reflect each country’s development level. Since the late 1980s, there has been a significant shift in the distribution of countries across these categories.
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In 1987, 30% of reporting nations were classified as low-income and 25% as high-income. By 2023, these proportions had changed dramatically, with only 12% in the low-income bracket and 40% in the high-income category.
Russia’s Return to High-Income Status Amid Sanctions
The evolution of income classifications varies across regions. South Asia, for instance, has seen a remarkable transformation. In 1987, all South Asian countries were categorized as low-income, but by 2023, this proportion had plummeted to just 13%. Conversely, the Middle East and North Africa region now has a higher percentage of low-income countries (10%) compared to 1987 when none fell into this category. Latin America and the Caribbean have experienced a substantial increase in high-income countries, rising from 9% in 1987 to 44% in 2023. Europe and Central Asia, however, show a slight decrease in the share of high-income countries, from 71% in 1987 to 69% in 2023.
Despite facing Western sanctions due to the Ukraine conflict, Russia has ascended from an upper-middle income economy to a high-income economy. In its most recent rankings, the World Bank has elevated Russia’s economy to the highest income category. This promotion marks Russia’s return to high-income status for the first time since 2015. In 2023, Russia’s GNI per capita reached $14,250, leading to its reclassification. The country’s economic performance was notable, with real GDP per capita growth at 3.6% and GNI per capita increasing by 11.2% in 2023, indicating the effectiveness of its macroeconomic policies.
Why Russians have more income despite the war
Russia’s economic resilience amid the ongoing conflict in Ukraine has led to an unexpected rise in income levels, as reported by the World Bank. In 2023, the country’s economy was significantly influenced by increased military-related activities. Growth was further bolstered by rebounds in key sectors, with trade expanding by 6.8%, the financial sector by 8.7%, and construction by 6.6%. These factors contributed to increases in both real GDP (3.6%) and nominal GDP (10.9%), resulting in an 11.2% growth in Russia’s Atlas GNI per capita.
The conflict in Ukraine has become a major economic driver for Russia, rivaling its political significance to the Kremlin. While Russians face shortages of some imported goods and the disappearance of many global brands (often replaced by Russian equivalents), the overall economic impact on most citizens has been limited. The government’s massive spending on military equipment and substantial payments to volunteer soldiers have provided a significant boost to the economy.
According to the London-based European Bank for Reconstruction and Development (EBRD), Russia’s economy is expected to continue growing in 2024 despite Western sanctions. The EBRD predicts a 2.5% expansion, a considerable upgrade from its previous forecast of 1.0% in September. This growth has pushed the Russian economy above pre-invasion levels seen before 2022. The country’s ability to offset sanctions through extensive war-related expenditure has been a key factor in this economic resilience. However, the projected growth for 2024 still represents a notable slowdown compared to the 3.6% growth recorded in 2023.
Geopolitical Strategy
Russia’s geopolitical strategy under Putin’s leadership has shifted towards embracing the concept of a Global South Century, moving away from traditional Western alliances. This strategic repositioning allows Russia to tap into new opportunities, particularly as China and India lead in purchasing power parity (PPP) terms. Putin’s approach underlines Russia’s dedication to building partnerships beyond conventional geopolitical lines, adapting to the changing global power dynamics.
Russia’s economic transformation, characterized by a departure from austerity measures, has ushered in a new era of investment-led growth, known as Putinomics. Simultaneously, investments in both military and civilian sectors through initiatives like the National Projects 2.1 program aim to bolster infrastructure and improve living standards, enhancing the quality of life for citizens.
Economists project Russia’s growth potential to soar, from pre-war levels of 1-1.5% to around 3.5% presently, signaling a robust recovery. Despite the World Bank’s PPP-adjusted estimate, concerns persist regarding the shadow economy’s impact on accurate measurements.
IMF’s Predictions
The IMF commended the global economy’s resilience, noting that it avoided a recession and the banking system remained stable. Most advanced economies’ growth predictions are generally accurate within 1.5 percentage points.
The UK, however, faces downgraded growth forecasts of 0.5% this year, making it the second weakest performer in the G7. Growth is expected to rise to 1.5% by 2025, with high inflation and interest rates projected until 2029. Chancellor Jeremy Hunt sees the IMF’s figures as an indication of the UK’s economic recovery, highlighting expected improvements in inflation and growth compared to Germany and France.
Conclusion
Russia’s economic resilience in the face of Western sanctions stands out as a particularly striking development. Despite the ongoing conflict in Ukraine, Russia has managed to regain its high-income status, driven by increased military spending, sector-specific growth, and a strategic pivot towards the Global South. This economic transformation, dubbed ‘Putinomics’, has led to improved growth projections and infrastructure investments.
However, challenges remain, including the impact of the shadow economy on accurate economic measurements. Meanwhile, other economies like the UK face their own struggles, with the IMF predicting slower growth compared to other G7 nations. These developments underscore the complex and evolving nature of the global economic order in the face of geopolitical tensions and shifting alliances.
