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. Last Updated: 07/27/2016

World Bank Paints Bleak Economic Picture

Employment, Wage and Output Growth in Selected Sectors*
Fuel, Energy-
Oil -7.634.78.3
Trade, Catering0.611.18.8
Culture, Arts4.028.3n/a
* From Aug. 2001 to Aug. 2002, %
** Real wage growth, adjusted for inflation, %
Source: World Bank
The World Bank painted a bleak picture of the nation's economic health Tuesday, saying that job creation has been confined to the most unproductive and low-paying sectors and that little has been done to address overdependence on oil and gas.

The government is trying to cut budget expenditures and reduce the burden of the ineffective state sector, but just the opposite is happening, the bank said in its quarterly report on Russia.

Since August 2001, public sector employment and wages rose faster than any other sector, including oil, the nation's most competitive and productive industry, said Christof R?hl, the bank's chief economist for Russia.

"In addition to the export-oriented sectors, it was public services, mainly health and education, that provided the strongest real wage increases and it has also been the government, which increased employment and provided new jobs," said R?hl.

In real terms, public sector wages remain below pre-crisis levels, whereas most other industries have seen wages surpass 1997 levels as jobs are shed and efficiency rises.

"In dollar terms, public sector wage levels have yet to reach where they were at in 1997," Renaissance Capital economist Alexei Moiseyev said, adding that by any standard, teachers and doctors are among the lowest-paid workers in the country.

But what is really worrying, according to R?hl, is that public sector growth is on the regional level, and most often it occurs in the poorest regions.

"These regions can't pay; they increase wage arrears and in the end come to the federal government for financial support," R?hl said.

Although the government is working to address social problems and create jobs in depressed regions, by doing this, it is also creating more long-term structural imbalances in the economy by supporting the least-productive sector.

According to the latest government figures, employment in the fuel and energy sector has shrunk by 7 percent since August 2001.

Employment in all other sectors, including machine building, agriculture and transport, has shrunk by an average of 3 percent.

The only sectors to see job growth of more than 1 percent were the gas industry, financial services and public services -- health, education, culture and arts.

During the same period, wages in all private sectors rose 10 percent to 15 percent, or half the rate of the public sector.

There are some bright spots.

According to the World Bank, productivity in the communications sector has increased 12.8 percent, agriculture 11.8 percent and trade and catering 8.1 percent since August 2001.

"These figures are very impressive and show that non-export-oriented sectors are still competitive despite the real appreciation of the ruble," Moiseyev said.

Even so, "with the most active economic sectors and the budget both dependent on natural resource prices, it would be hard to argue that the external vulnerability of Russia's economy has diminished," the World Bank said in its report.

R?hl said there is still little evidence that domestic industries are expanding fast enough to cushion against a sudden decline in crude prices.

The World Bank warned that with the current rate of foreign direct investment, which is expected to grow just 2.5 percent this year, the economy will not be able to grow any faster than its current rate, which is roughly 4 percent.

To grow any faster, the government must find ways to support the development of new companies and increase competition in all sectors of the economy.

"If it fails, it will remain dependant on the export-oriented sectors, which will continue to account for the largest portion of the country's GDP and attract most of the foreign investments," R?hl said.