Economy

The Russian economy has been growing over the past six years: 1999 - 5%, 2000 - 8.8%, 2001- 5.3%, 2002 - 4.7%, 2003 - 7.3%, and 2004 - 7.1%. By the end of the first quarter of 2005, GDP was up by 5.2%. The Russian government projects a 6.3% - 6.5% increase in GDP by the end of 2005, and the International Monetary Fund (IMF) predicts an increase of 6%.
In 2004, industrial output in Russia increased by 6.1%. In the first quarter of 2005, industry was up by 3.9%, and a 5.1% increase is predicted for the end of 2005. 
The highest growth is being registered in the food industry, construction, and communications. Growth in agriculture was first recorded in 2000.
Inflation gradually declined in 1999-2004. In 2003, it was 12%, in 2004 it was 11.7%, and in the first quarter of 2005 it was 5.3%. By the end of 2005, inflation should not exceed 10%.
The gold and foreign exchange reserves of the Central Bank of Russia amounted to $10 billion at the start of 1999, $78 billion at the end of 2003, and $112.8 billion at the end of 2004. The Central Bank reports that as of April 14, 2005, Russia’s gold and foreign exchange reserves were $137.5 billion, which was a 10.4% increase since the beginning of the year.
In 2004, there was a 10% increase in investment in the country. In 2005, foreign investment is expected to increase by 10%, to $6 billion. An 11% increase in foreign investment is predicted for 2006.
In 2004, the budget surplus was 686.5 billion rubles, or 4.1% of GDP, budget revenues were 3,422.26 billion rubles, and budget spending was 2,735.745 billion rubles.
The federal budget for 2005 was approved on the basis of a projected GDP of 18,720 billion rubles and inflation of 7.5% - 8.5%. Planned budget revenues are 3,326 billion rubles (17.8% of GDP), planned spending is 3,047 billion rubles (16.3% of GDP), and the planned budget surplus is 278.1 billion rubles (1.5% of GDP). The federal budget surplus in 2006 is expected to be 405 billion rubles.
In 2004, Russia’s foreign trade turnover was $278.1 billion, up on 2003 by 31.1%: exports increased by 34.8% to $183.2 billion, and imports increased by 24.7% to $94.8 billion.
Russia’s foreign trade in the first quarter of 2005 was 32.3% up on the same period of last year, to $68.2 billion: exports were up by 34.5% at $49.5 billion, and imports were up by a 26.9% at $18.7 billion.
Specialists say that these results are largely due to the financial crash that hit Russia in August 1998, when the ruble was devalued fourfold. The devaluation stimulated exports and slowed down the growth of imports, which created a favorable microclimate for Russian commodity producers. Experts link the growth of Russia’s foreign trade in 2004 with an increase in trade with European countries.
The second factor that has benefited the Russian economy is that demand for oil has been strong. Oil is Russia’s main export, and prices have been stable at $35-$40 per barrel (world oil prices reached $52 per barrel). Russia’s oil industry has developed rapidly which has ensured high budget revenues.
The third factor behind Russian economic growth is that the government has been pursuing sensible economic policies. It has implemented economic reforms aimed at shrinking the shadow economy, increasing capital investment and optimizing government spending. Radical tax reforms were introduced. Personal income tax was cut to 13%. A single regressive social tax was introduced, the profit tax was reduced, and the sales tax was abolished.
The government’s campaigns to cut bureaucracy, improve the judicial system and combat corruption have also contributed to economic growth.
The main problem for the Russian economy is its high dependence on raw material exports and the low level of investment in hi-tech industry. There are other problems as well, including a relatively large shadow economy, the weakness of small and medium-sized businesses, and the underdevelopment of the financial sector.
In his address to the Federal Assembly in May 2003, President Vladimir Putin, who had repeatedly reproached the Russian government for a lack of ambition, set the Russian economy the task of doubling GDP by 2010. This sparked a lively public debate. Some specialists believe that this task is realistic, while others do not. The economic growth rates seen in 2004 and early 2005 lend strength to the former argument.
Russia’s special position in the CIS is determined by objective circumstances. It accounts for over a half of the total population of the CIS and about 70% of its GDP. In 2004, the GDP of the CIS single economic space was more than $711 billion, of which Russia accounted for over 70%. Russia also accounts for about 80% of the money supply and the foreign exchange reserves of the central banks of the CIS countries. Russia accounts for 54% to 88% of the foreign trade turnover of individual CIS countries. Russia provides 50% of the funding for the coordinating institutions of the CIS.

OECD Investment Policy Reviews :
Russian Federation
Enhancing Policy Transparency

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