Russia’s economy has defied sanctions in the two years since Moscow invaded Ukraine in February 2022 – so much so that the World Bank is now classifying Russia as a “high-income country”.
On Monday, the World Bank announced it has upgraded Russia from an upper-middle-income country to a high-income country, according to a report from the financial institution’s economists.
“Economic activity in Russia was influenced by a large increase in military-related activity in 2023,” World Bank economists wrote in their report.
Last year, Russians earned US$14,250 per person on a gross national income basis.
The World Bank’s upgrade confirms reports from Russia that suggest the growth is primarily driven by wartime activities that generate demand for military goods and services, making some sectors winners in Russia’s wartime economy.
Russia’s trade jumped by nearly 7 per cent last year, while activities in the financial sector and construction grew by 6.6 per cent and 3.6 per cent, respectively.
This boosted Russia’s real GDP – which is economic growth adjusted for inflation – by 3.6 per cent.
The development has made some poor Russians better off financially, complicating any calculus over how to end the war.
Other than Russia, the World Bank also upgraded Bulgaria and Palau from upper-middle-income to high-income countries. Their upgrades came after several years of post-pandemic growth.
Ukraine also moved up from a lower-middle-income country to upper-middle-income country as real GDP grew 5.3 per cent – reversing a steep 28.8 per cent slump in 2022.
“While Ukraine’s economy was significantly impaired by Russia’s invasion, real growth in 2023 was driven by construction activity (24.6 per cent), reflecting a sizeable increase in investment spending (52.9 per cent) supporting Ukraine’s reconstruction effort in the wake of ongoing destruction,” the World Bank added.
In all, the World Bank upgraded the classification of seven countries this year and downgraded just one territory: West Bank and Gaza.
West Bank and Gaza became an upper-middle-income enclave in 2023, but its economy was significantly impacted by Israel’s war against Hamas.
“The conflict in the Middle East began in October 2023, and while the impact on West Bank and Gaza was limited to the fourth quarter, its scale was nonetheless sufficient to lead to a 9.2 per cent drop in nominal GDP,” the World Bank economists wrote. West Bank and Gaza’s GDP declined 5.5 per cent in real terms.
