Economy of Russia
The economy of Russia is a high-income, industrialized, mixed and market-oriented emerging economy. It has the ninth-largest economy in the world by nominal GDP and the fourth-largest economy by GDP. Due to a volatile currency exchange rate, its GDP measured in nominal terms fluctuates sharply. Russia was the last major economy to join the World Trade Organization, becoming a member in 2012.
Russia has large amounts of energy resources throughout its vast landmass, particularly natural gas and petroleum, which play a crucial role in its energy self-sufficiency and exports. The country is a petrostate, with it having the largest natural gas reserves in the world, the second-largest coal reserves, the eighth-largest oil reserves, and the largest oil shale reserves in Europe. Russia is the third-largest exporter of natural gas, the second-largest natural gas producer, the second-largest oil exporter and producer, and the third-largest coal exporter. As of 2020, its foreign exchange reserves were the fifth-largest in the world. Russia has a labour force of about 73 million people, which is the eighth-largest in the world. It is the third-largest exporter of arms in the world. The large oil and gas sector accounted up to 30% of Russia's federal budget revenues in 2024, down from 50% in the mid-2010s, suggesting economic diversification.
Russia's human development is ranked as "very high" in the annual Human Development Index. Roughly 70% of Russia's total GDP is driven by domestic consumption, and the country has the world's twelfth-largest consumer market. Russia has the fifth-highest number of billionaires in the world. However, its income inequality remains comparatively high, caused by the variance of natural resources among its federal subjects, leading to regional economic disparities. High levels of corruption, a shrinking labor force and labor shortages, a brain drain problem, and an aging and declining population also remain major barriers to future economic growth.
Following the 2022 Russian invasion of Ukraine, the country has faced extensive sanctions and other negative financial actions from the Western world and its allies which have the aim of isolating the Russian economy from the Western financial system. However, Russia's economy has shown resilience to such measures broadly, and has maintained economic stability and growth driven primarily by high military expenditure, rising household consumption and wages, low unemployment, and increased government spending. Yet, inflation has remained comparatively high, with experts predicting the sanctions will have a long-term negative effect on the Russian economy.
History
The Russian economy has been volatile over the past multiple decades. After 1989, its institutional environment was transformed from a command economy based upon socialist organizations to a capitalistic system. Its industrial structure dramatically shifted away over the course of several years from heavy investment in manufacturing as well as in traditional Soviet agriculture towards free market related developments in natural gas and oil extraction in additional to businesses engaged in mining. A service economy also expanded during this time. The academic analyst Richard Connolly has argued that, over the last four centuries in a broad sense, there were four main characteristics of the Russian economy that have shaped the system and persisted despite the political upheavals. First of all the weakness of the legal system means that impartial courts do not rule and contracts are problematic. Second is the underdevelopment of modern economic activities, with very basic peasant agriculture dominant into the 1930s. Third is technological underdevelopment, eased somewhat by borrowing from the West in the 1920s. And fourth lower living standards compared to Western Europe and North America.Russian Empire
Soviet Russia and the Soviet Union with socialist economy (1917–1987)
Beginning in 1928, the course of the Soviet Union's economy was guided by a series of five-year plans. By the 1950s, the Soviet Union had rapidly evolved from a mainly agrarian society into a major industrial power.By the 1970s the Soviet Union was in an Era of Stagnation. The complex demands of the modern economy and inflexible administration overwhelmed and constrained the central planners. The volume of decisions facing planners in Moscow became overwhelming. The cumbersome procedures for bureaucratic administration foreclosed the free communication and flexible response required at the enterprise level for dealing with worker alienation, innovation, customers, and suppliers.
From 1975 to 1985, corruption and data manipulation became common practice within the bureaucracy to report satisfied targets and quotas, thus entrenching the crisis.
Economic reforms within the Soviet system, re-introduction of private property and private business (1987–1991)
Starting in 1986, Mikhail Gorbachev attempted to address economic problems by moving towards a market-oriented socialist economy. Gorbachev's policies of Perestroika failed to rejuvenate the Soviet economy; instead, a process of political and economic disintegration culminated in the breakup of the Soviet Union in 1991.Full transition to market economy, prices liberalization and privatization (1991–1997)
Following the collapse of the Soviet Union, Russia underwent a radical transformation, moving from a centrally planned economy to a globally integrated market economy. Corrupt and haphazard privatization processes turned over major state-owned firms to politically connected "oligarchs", which has left equity ownership highly concentrated.A cabinet led by President Boris Yeltsin in the place of a prime minister took office in November 1991 with a mandate to implement economic reforms. Deputy Prime Minister Yegor Gaidar led the reform program, which began on 2 January 1992 with the lifting of price controls, and caused an immediate increase in prices. Yeltsin's program of radical, market-oriented reform came to be known as a "shock therapy". It was based on the policies associated with the Washington Consensus, recommendations of the IMF and a group of top American economists, including Larry Summers who in 1994 urged for "the three '-ations'—privatization, stabilization, and liberalization" to be "completed as soon as possible."
Russian industry and society was not prepared for the change, and Yeltsin did not have control over the Russian Central Bank, which set monetary policy. As a result, monetary policy was poorly organized and coordinated. Russia experienced hyperinflation between 1992 and 1995. Prices increased by 300% in January 1992, and by as much as 1,000% in the first three months. The inflation rate was 2,509% for the year 1992, 840% for 1993, 215% for 1994, and 131% for 1995.
The results were disastrous: the jump in prices from shock therapy wiped out the modest savings accumulated by Russians under socialism and resulted in a regressive redistribution of wealth in favour of elites who owned non-monetary assets. Shock therapy was accompanied by a drop in the standard of living, including surging economic inequality and poverty, along with increased excess mortality and a decline in life expectancy. Russia suffered the largest peacetime rise in mortality ever experienced by an industrialized country. Likewise, the consumption of meat decreased: in 1990, an average citizen of the RSFSR consumed 63 kg of meat a year; by 1999, it had decreased to 45 kg. As of 1997, the number of people living in poverty had increased by fifteen times since 1990, with about half of the population below the poverty line.
The majority of state enterprises were privatized amid great controversy and subsequently came to be owned by insiders for far less than they were worth. For example, the director of a factory during the Soviet regime would often become the owner of the same enterprise. Under the government's cover, outrageous financial manipulations were performed that enriched a narrow group of individuals at key positions of business and government. Many of them promptly invested their newfound wealth abroad, producing an enormous capital flight. This rapid privatization of public assets, and the widespread corruption associated with it, became widely known throughout Russia as "prikhvatizatisiya," or "grab-itization."
Difficulties in collecting government revenues amid the collapsing economy and dependence on short-term borrowing to finance budget deficits led to the 1998 Russian financial crisis.
In the 1990s, Russia was a major borrower from the International Monetary Fund, with loan facilities totalling $20 billion. The IMF was criticised for lending so much, as Russia introduced little of the reforms promised for the money and a large part of these funds could have been "diverted from their intended purpose and included in the flows of capital that left the country illegally".
On 24 September 1993, at a meeting of the Commonwealth of Independent States Council of Heads of State in Moscow, Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Uzbekistan signed the Treaty on the creation of an Economic Union which reinforces by an international agreement the intention to create an economic union through the step-by-step creation of a free trade area, a customs union and conditions for the free movement of goods, services, capital and labor. All these countries have ratified the Treaty and it entered into force on 14 January 1994. Turkmenistan and Georgia joined in 1994 and ratified the Treaty, but Georgia withdrew in 2009.
On 15 April 1994, at a meeting of the Commonwealth of Independent States Council of Heads of State in Moscow, all 12 post-Soviet states signed the international Agreement on the Establishment of a Free Trade Area in order to move towards the creation of an economic union. Article 17 also confirmed the intention to conclude a free trade agreement in services. Article 1 indicated that this was "the first stage of the creation of the Economic Union", but in 1999 the countries agreed to remove this phrase from the agreement.
Russia concluded bilateral free trade agreements with all CIS countries and did not switch to a multilateral free trade regime in 1999. Bilateral free trade agreements, except for Georgia, Azerbaijan and Turkmenistan, ceased to apply only after 2012 with Russia's accession to the new multilateral CIS free trade area.
Further integration took place outside the legal framework of the CIS. Pursuant to the Treaty on the creation of an Economic Union, the Agreement on the Customs Union between the Russian Federation and the Republic of Belarus was signed on 6 January 1995 in Minsk. The Government of the Republic of Belarus and the Government of the Russian Federation, on the one side, and the Government of the Republic of Kazakhstan, on the other side, signed an Agreement on the Customs Union in Moscow on 20 January 1995 in order to move towards the creation of an economic union as envisaged by the treaty. The implementation of these agreements made it possible to launch the Customs Union of the Eurasian Economic Community in 2010., according to the database of international treaties of the Eurasian Economic Union, these agreements are still in force and apply in part not contrary to the Treaty on the Eurasian Economic Union.
International agreements such as the following have further deepened trade and economic relations and integration with Belarus. The Community of Belarus and Russia was founded on 2 April 1996. The "Treaty on the Union between Belarus and Russia" was signed on 2 April 1997. And finally the Treaty on the Creation of a Union State of Russia and Belarus was signed on 8 December 1999.