"Getting Richer in Times of War? World Bank Releases GNI Report, Showing Increase in Per Capita Income in Russia and Ukraine"

The World Bank has released the country classifications by income level for 2024-2025. Despite the ongoing conflict for over two years, both Russia and Ukraine have seen an increase in their Gross National Income (GNI) per capita this year. Why are sanctions not effective? Why do Russia and Ukraine seem to become wealthier as the conflict continues?

World Bank Gross National Income (GNI) per capita

The World Bank classifies the world's economies into four income groups: low-income, lower-middle-income, upper-middle-income, and high-income. This classification is updated annually on July 1st based on the previous calendar year's Gross National Income per capita.

The GNI per capita used by the World Bank is expressed in US dollars and adjusted for economic growth, inflation, exchange rates, and population growth. The latest data published by the World Bank is as shown in the following figure.

Russia Rejoins the High-Income Country Club

This year, Bulgaria, Palau, and Russia have transitioned from upper-middle-income countries to high-income countries, with per capita GNI surpassing $14,006.

According to the report, Russia's economic activity in 2023 was significantly influenced by a substantial increase in military-related activities, with trade increasing by 6.8%, finance by 8.7%, and construction by 6.6%, driving economic growth. These factors led to a real GDP growth of 3.6%, nominal GDP growth of 10.9%, and an 11.2% increase in GNI as reported by the World Bank.

The increase in trade also indicates that sanctions from Europe and the US seem to have had limited impact, as Russia has established alternative trading patterns with China and other countries to circumvent the sanctions.

US Treasury: Russia Evading Sanctions Using USDT, Congress Urgently Needs to Expand Regulatory Authority

Ukraine Increases Reconstruction Spending, Moves to Upper-Middle-Income Group

Ukraine has also moved up from the lower-middle-income group to the upper-middle-income group, with the report stating that the economy recovered in 2023 with a real GDP growth of 5.3%, compared to a 28.8% decline in 2022, and a continuous population decline of over 15% since the invasion. The prices of domestically produced goods and services have further increased following the Russian invasion, leading to a significant 18.5% increase in per capita GNI.

Despite severe damage to the Ukrainian economy due to the Russian invasion, the actual growth in 2023 was primarily driven by a 24.6% increase in construction activities, reflecting a significant 52.9% increase in investment spending to support Ukraine's reconstruction efforts following the ongoing destruction.

However, the population decline, reducing the denominator, remains a heartbreaking factor.

Does an Increase in Per Capita GNI Translate to People's Well-Being?

War is cruel and heartless. Although military expenditures during war and post-war reconstruction can trigger substantial investments, civilians caught in the midst of conflict may not feel the joy of income growth. Hopefully, the two-year-long conflict can be swiftly resolved, allowing civilians to return to normal life.