Russia is a founder and the largest member of Eurasian Development Bank, holding two thirds of its charter capital (US $1 billion).
GDP growth continued to slow in Q3 2016. According to Rosstat, GDP declined to 0.4% year-on-year, after a drop of 0.6% in Q2. At the same time, the Bank of Russia estimates that the quarterly growth in GDP, if to exclude the seasonal factor, was positive in Q3 2016. Overall, GDP reduction over January-September 2016 was 0.7% compared to the respective period of 2015. Industrial outputs in Q3 2016 decreased by 0.1% year-on-year, after a 1% increase in the previous quarter. The decline was primarily due to the unstable restoration of outputs in the processing sector. Mining continues to maintain stable growth in the meantime. The expected acceleration in agriculture was achieved in Q3. The sector grew by 4.7% year-on-year, after a 2.6% increase over the first six months of the year, due to high yields. Freight turnover remained positive in Q3 and reached the year high in September.
Inflation continued to decline in September-December 2016. The appreciation of the rouble, high agricultural yields and the persistently weak domestic demand were the significant factors contributing to its slowdown during the period. According to the Bank of Russia, inflation expectations were different in September-December 2016 and this necessitated the continuation of a moderately tough monetary policy. Annual inflation reached 5.4% in December. The continued restricted demand and the government’s moderately tough fiscal policy will help to ensure further inflation slowdown.
In October-December, the Bank of Russia kept the key rate at 10% in line with its declared intentions to maintain the indicator achieved in September until the end of the year in order to ensure a stable decrease in inflation. According to the Bank of Russia, if this trend continues it will consider reduction in the key rate in the first six months of 2017.
The Bank of Russia’s preliminary estimates are that Russia’s balance of payments in January-December 2016 was positive and amounted to US $22.2 billion (US $69 billion in 2015). The continued decline in trade surplus in September-December 2016 resulted, in the first place, from a slide in Russian raw material exports and an increase in investment imports. This was compensated by a decrease in the deficit of the balance of services. Net private sector capital outflows in January-November 2016 were, according to the Bank of Russia, US $16.1 billion (US $54.1 billion the year before).
The Ministry of Finance estimates that Russia’s federal budget deficit was RUB $1.787 trillion, or 2.4% of GDP, in January-November 2016. The deficit was financed primarily by changes in budget and reserve fund balances. Budget performance was within the adjusted targets for 2016.
In November 2016, the Law On Amendments to the Federal Law On the Federal Budget for 2016 was signed. The draft law adjusts budget parameters for 2016 in view of the economic conditions that had formed during the year (the price of Urals oil, reduced non-efficient budget expenditure and their redistribution to support more important items). With the approved amendments, the federal budget deficit in 2016 will be 3.7% of GDP, 0.7% above the previously approved figure.
EDB’s priorities in Russia
EDB’s investment activities in Russia in 2013-2017 included the following:
- The Bank tries to support Russia in solving one of its priority tasks to improve national competitiveness and labour productivity, as well as to create conditions for the efficient development of domestic and external markets as envisioned by the Main Areas of Activities of the Government of the Russian Federation until 2018.
- The Bank will focus on financing major infrastructure projects in the power sector, transport and communications, as well as non-primary sectors with high added value, including those aiming to reduce energy consumption and introduce resource and energy saving technologies and innovations in agriculture.
- One of the main tasks set by the government is to improve the investment climate and the country’s attractiveness for foreign investors. To this end, the Bank will continue to extend technical assistance to set up an international financial centre in Moscow.