Introduction
Russia is a large country with the widest length spanning about 8000km along geodesic line bordering Poland on one end and Kuril Islands on the farthest southeast. This country spans 9 time zones. Most parts of this county consist of vast stretches of plains to the south while to the north it is heavily forested. It also has mountain ranges along the southern borders. This country also has one of the world’s largest surface water resources with thousands of rivers and inland water bodies.
In 1991 a first direct presidential election was held in which Boris Yeltsin worn to become the president. After the disintegration of the Soviet Union many reforms were carried out such as market and trade liberalization, privatization among other changes recommended by the International Monetary Fund and United States under the banner of shock therapy. This resulted in a major decline of the economy with the GDP and the industrial output dropping by up to 50%.
Privatization of the then state enterprises resulted in the acquisition of the same by very powerful and corrupt individuals in the country who were well connected politically. These people plundered the country’s economic resources taking with them billions in cash and assets out. This led to the sudden collapse of social services and plunging it into poverty that saw its rise from 1.5% during the soviet era to 39 – 49% by mid-1993. Violence, criminal gangs, lawlessness and corruption became the order of the day.
With its population half of the former USSR, this country took the sole responsibility of settling the USSR’s external debts. Its huge budget deficit further plunged the country into financial crisis in what became the 1998 Russian financial crisis. President Yeltsin then resigned on 31 December 1999 handing over power to Prime Minister Vladimir Putin whose leadership style has been credited with the return of order and stability to the country. During his years as president, the country has continued to experience economic growth and increased influence in the world stage.
For straight 9 years, the county had one of the fastest growing economies in the world that resulted in improvement of the living standards of the average citizens. “This strong economic performance had been a major factor in the popular support that the Russian leadership enjoyed and was also arguably a factor in the boldness with which that leadership reasserted Russia’s status as a world power, challenging the United States, Europe, the neighboring former Soviet states in economic and national security areas (Cooper).”
However, in the recent global recession, its economy was hit hard resulting in the abrupt end of its decade long economic growth whose GDP was rising at the rate of 6.9% annually. Russia had a population of about 142.9 million by august of 2011. It has a low life expectancy compared to the more developed western nations including the European nations.
According to a UN report, its population faces a decline, with an expected loss of up to a third of the current population by 2050. The major causes of death are attributed to diseases such as cancer and cardiovascular diseases, traffic accidents and violence. For a healthy Russian country, therefore major reforms are expected in the health sector.
According to the government spending, Russian Federation government budget kept growing from 2001-2007 due to revenues derived from taxation of oil and gas exports. In 2000-2001, the taxation system was overhauled introducing a 13% flax rate tax for both individuals and corporations that helped improve the collected tax amount. Then the government also reduced the tax imposed on oil production and exports.
In 2007, its budget grew by 5.5% of the GDP while in 2008 it grew by 4.1%. the government ant crisis package for 2008 was about 6.7%, when the country faced its worst recession in years. By 2010, its budget deficit was lowered to 3.9% due to improved economic conditions caused by the high fuel prices in the world at the time.
Macroeconomic study of the Russian Federation
Major macroeconomic indicators
The Russian gross domestic product had grown by 0.2 percent in the second quarter of 2011. From history, its quarterly GDP was growing at the rate of 1.22 % from 2003 until 2011. It hit a high of 3.2% on December 2006, and a record low of -4.2% in December 2008. Revenues from its oil and gas industries greatly contributed towards its budget.
The table below shows the macroeconomic indicators of the Russian Federation as a percentage of the previous year:
The graph below represents the data in the table above.
Unemployment refers to that state of joblessness. This occurs when people are without jobs and they are actively searching for one. The rate of unemployment in the Russian Federation was 6.4% in October of 2011. It had a high of 14.6% in February 1999 and low of 5.4% in May 2008.
The table below shows Russian Federation unemployment rate:
Current account balance: “Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) (Russia).” The important part of current account is the balance of trade which means that the key drivers in the current accounts of world’s economies are the trade patterns and their changes.
Therefore the current account balance of the Russian federation is as shown in the table below:
The graph below represents the data in the table above
Fiscal indicators
Russia’s government deficit was last reported to be 6.43 in 2008 by the World Bank. It included both domestic and foreign liabilities.
Ratio of gross fiscal deficit to nominal GDP:
(Russia, Trading Economies).
The graph below represents the data in the table above
Levels of government expenditures and their ratio to nominal GDP: Data for latest 5 years was unavailable hence data for 1994 to 1998 was used to show the government expenditure as a percentage of its GDP.
(Morozov).
The graph below represents the data in the table above
Tax revenue is the income earned by governments inform of taxes, fines and the social contributions. Tax refunds are normally categorized under negative revenue.
The tax revenue of the Russian Federation was lastly reported to be 15.67 in 2008 by the word bank, as a percentage of the GDP.
Tax revenue percentage of GDP: the table bellows gives data on tax revenue as a percentage of GDP from 2005-2009 of the Russian Federation
(Russia, Trading Economies).
The graph below represents the data in the table above
Monetary Indicators
Money supply is the total amount of money including; all currency outside banks, savings, foreign currency deposits and demand deposits other than of the central government, at a specific time, available in the economy. Its data is normally collected and published by the governments. This data is usually closely monitored by both the private and public institutions as any changes affects the price level of commodities and causes inflation.
The annual money growth rate for the Russian Federation was lastly reported to be 14.61 in 2008 by the World Bank
Rate of growth of money supply: the table below shows the money growth rate in the Russian Federation from the year 2005-2009
(Russia, Trading Economies).
The graph below represents the data in the table above
Rate of inflation refers to the percentage rate of change of the price levels of commodities over some long period of time.
The inflation rates in the Russian Federation were lastly reported to be 7.2% in October 2011. It has been having an average of 175.36 from 1991 until 2010. It reached its historical high of 23333% in 1992 and its lowest, 5.5% in 2010.
Rate of inflation: the table below shows rate of inflation in the Russian Federation from the year 2007-2011 November
(Russia, Trading Economies).
The graph below represents the data in the table above
International indicators
Exports growth: the table below shows the growth of exports in the Russian Federation from the year 2007-2011 November
(Russia, Trading Economies)
The graph below represents the data in the table above
Imports growth: the table below shows the growth of imports to Russian Federation from the year 2005-2009
(Russia, Trading Economies)
The graph below represents the data in the table above
Level of foreign exchange reserves: the table below shows the level of foreign exchange reserves of the Russian Federation from the year 2005-2009
(Russia, Trading Economies)
The graph below represents the data in the table above
Major problems facing Russian Federation economy
The major problem facing the Russian economy is “its lack of economic diversification and overreliance on revenues from oil and gas exports (Kopinski).” Russia is also facing a number of key problems including; aging work force, inadequate pension system, crumbling infrastructure and slow development of new gas and oil fields which should replace the already depleted current ones.
Its dependence on oil and gas exports greatly manifested itself during the global economic recession. That resulted to commodity prices plunging drastically thus causing the country to be hardest hit compared to other world’s major economies. The government budget declined from a surplus of 4.1% to a whooping deficit of 6.3 percent in 2008 and 2009 respectively.
Despite the 1990’s privatization of Russia’s government enterprises, corruption, mismanagement and high rates of taxes had created major obstacles towards the growth of oil and gas sectors therefore leaving them in underinvested state.
In addition to that, since the fall of USSR, the Russian Federation fell behind in the development of computer technologies and IT. Russia is also underdeveloped in a number of keys areas of the economy including banking and retail and the food sectors.
Even though Russia boasts 9% of the world arable land and fresh water, underinvestment in the agricultural sector has left this country lagging behind other major economies. Example, only about 20 to 30 percent of the total food produced in Russia’s agricultural sector is bought through organized retail shops and companies. The remaining 70% is bought in the open air markets and directly through the farms which are extremely inefficient and results to reduction in the quality of the food products. Therefore, the current penetration of organized retailers in the Russian market by foreign investors is seen as an opportunity to bring about change in the food sector and help in creating jobs.
Also its foreign direct investment fell to less than 40 billion US dollars in 2009 with the lowest being US dollar 75 billion in 2008. However, currently the banking sector is also seen as important investment opportunity which now boasts the second fastest growing sector in the world just behind china.
All in all, the country now has started to reinvigorate its technology sector with the Russian President Dmitry Medvedev announcing that his country will seek to build its own version of Silicon Valley outside Moscow for the development of IT, telecommunications, atomic and biomedical technologies and energy.
Future prospects of the Russian Federation
The country is facing an uncertain economic future. It has significantly recovered from its worst recession in 1998 as indicated in the data above. Its economic growth resumed with a reduction in unemployment rates. The exports have increased with a reduction in imports in addition to that the country has started a major awakening of its technological base and economic and tax reforms that has seen the strengthening of its banking system.
Also the current drive towards economic diversification is seen as a good gesture toward development. Currently, the country has started revitalizing its sleeping agricultural sector allowing the combination of technology and tools to increase its agricultural produce for exports. The overreliance on oil and gas revenues by the government has since started to decline after the recession that hit the country.
Technologically, the country has dedicated vast amount of resources towards the development of its IT sector and other key technological area such as rocketry that defines the country’s strength in the world arena.
Therefore, from these improvements, the country has shown a great potential for a stronger economy in the future.
Conclusion
Russian Federation is a country to watch in the future as it has once again promised to regain former lost glory.
References
Cooper, William H, 2009, Russia’s Economic Performance and Policies and Their Implications for the United States, CRS Report for Congress.
Kopinski, Mark, Russia’s Push for Economic Diversification and Modernization, American Century Investments Blog, 2011. Web.
Morozov, alexander & Mark W. Sundberg, 2000, Russia: Issues in Public Expenditure Policy.
Russian Federation, Main Macroeconomic Indicators of Russian Federation (as % of the previous year), Web.
Russia, Trading Economies. Web.