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Russian Officials Optimistic on Growth

Economic growth hovers around 2% annually, a pickup from the 0.7% average of the last 10 years but a far cry from the 6.9% average of the decade before
Prime Minister Dmitry Medvedev says 55% of the revenues in the first seven months of this year were  not related to the sale of oil and gas.Prime Minister Dmitry Medvedev says 55% of the revenues in the first seven months of this year were  not related to the sale of oil and gas.

Russia has major challenges ahead in terms of improving its competitiveness on the world stage, but its current and former officials remain positive despite mounting western sanctions.

Russian Railways chairman and former deputy prime minister Arkady Dvorkovich, speaking to CNBC at the Ambrosetti Forum in Cernobbio, Italy on Friday, admitted the slow pace of progress in the country of 144 million.

"I think we're far from where we want be…A long way to go, but we are getting more competitive with time," he said, emphasizing the country's plans to strengthen foreign partnerships and increase public and private investment into education and innovation.

Economic growth in Russia hovers around 2% annually, a pickup from the 0.7% average of the last 10 years but a far cry from the 6.9% average of the decade before that and still away from the current world average of around 3.5%.

Its longstanding reliance on raw materials revenues, observers say, has hindered the modernization of its economy and looks set to continue to do so, despite President Vladimir Putin's pledge to bring growth to 4%.

Maybe a Bit Slower

For the past decade, Russian leaders have talked about diversifying the economy, but critics say that efforts so far have been lacking. Asked if he felt his government had failed, Dvorkovich was more forgiving.

"I think we did a good job, but maybe a bit slower than we could," he said. "And still we're on the upward trend."

The chairman described a series of difficult structural reforms underway, including controversial pension reforms, and a phase of "aggressive investment policy"—both public and private—aimed at 20% of gross domestic product, up from the current 17 to 18%.

"That's a plus that should produce higher growth," Dvorkovich said. "And innovation—the combination of investments into education, science and technology—it's quite a challenge but we are ready."

In the face of current and likely future sanctions from the West, with some economists predicting recession for Russia as result, the scope of this challenge will be hard to understate.

Budget Surplus

The Russian Economic Development Ministry said on Thursday that it expects the country's budget this year to be in a surplus of around 1% of the GDP, Xinhua reported.

"High macroeconomic indicators are the key to sustainable growth," Economic Development Minister Maxim Oreshkin said at the Moscow Financial Forum.

"This year we expect a budget surplus of about 1% of GDP. We have a positive current account balance of more than 2% of GDP and we have a low external debt," he added.

The finance ministry estimated the surplus of the federal budget at 1.38 trillion rubles (around $20 billion) in January-July this year.

Russian Prime Minister Dmitry Medvedev, commenting on the surplus at a government meeting on Thursday, said that 55% of the revenues in the first seven months of this year were not related to the sale of oil and gas.

Budget expenditures were below the planned targets by approximately 5% and amounted to just over 7.6 trillion rubles, Medvedev said.

In January, finance minister, Anton Siluanov, forecast Russia's federal budget to have a surplus this year instead of a previously forecast deficit of 1.3% of GDP, due to higher than expected oil prices.

Prices of oil, exports of which constitute a significant part of the country's revenues, have been rising steadily in the last two years.

Oreshkin said that the Russian economy has been growing in the past one and half year, although the ministry reduced its forecast for GDP growth this year to 1.8% from previous 1.9% over new sanctions, market volatility and capital outflow, the ministry's latest paper on the state of the country's economy showed.

He said the slowdown in economic growth will be temporary, as a set of measures proposed by the government should provide a solution to problems in the social and economic spheres.

The measures include projects of developing the key sectors of the economy, a plan of increasing the level of investment activity and the pension reform.

As a result, the ministry expects the country's economic growth to reach 2% in 2020 and to exceed 3% in 2021, it said.

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