The World Bank has warned that poverty rates in Russia will return to the rates they reached in 2007 as the nation’s economy continues to contract, inflation rises, and individual purchasing power diminishes. These conditions underscore the belief, common in the former Soviet nation, that the ordinary people in Russia are once again bearing the brunt of the nation’s poor economic climate.
The World Bank warns that the number of poor people in Russia will climb to 20 million this year (the nation’s total population is 140 million). This will represent the largest increase in poverty the nation has experienced since the 1998-99 financial crisis.
The World Bank’s lead Russian Economist, Birgit Hansl, warned that the government would have troubles preventing the rise in poverty due to a sharp fall in government budget revenues stemming from the decline in oil prices.
Oil comprises Russia’s primary source of export revenues. Unfortunately, oil prices have dropped to less than $40 per barrel (they were $115 per barrel in June 2014). Russia has also suffered economically thanks to sanctions imposed by the West following Russia’s invasion of Ukraine.
Hansl said, “It’s clear the fiscal space is very small to continue with social expenditure increases.” She noted that such social expenditures could be better-targeted and proposed means testing as a way to better achieve the government’s goals.
World Bank Poverty Economist, Mikhail Matytsin, noted that the financial downturn would also cause a dramatic shift in consumption patterns. He and the Bank fear private consumption will drop by three percent this year, after having already dropped by nine percent in 2015.
The World Bank predicts these consumption levels will only begin to rise again in 2018. Before the most recent economic turndown, private consumption had been on the rise (a steady six percent year after year). The drops that have occurred during this most recent downturn are even steeper than the numbers posted during the 2008 global financial crisis.
During the most recent economic report on Russia, the World Bank downgraded its growth forecast, predicting a contraction in gross domestic product (GDP) of 1.9% this year. Next year, growth will rise to a modest 1.1%, well below average growth rates for similarly developed nations.
The World Bank believes Russia needs to experience serious structural reforms in order to ensure a return to economic growth. Unfortunately, it posited that such reforms were unlikely before the 2018 presidential election.