Page 7 - RusRPTMar23

1.0 Executive summary
The sanctions onslaught on year on were aimed at destroying the economy. Twelve months ago, Western nations responded to Russia's invasion of eastern Ukraine with an unprecedented ratcheting up of sanctions, now totalling almost 13,000. Over the past twelve months, 10,900 sanctions were applied, almost 9,000 targeting individuals. The aim was to create an economic and financial crisis that would not only degrade the country's ability to fund the so-called “Special Military Operation” but to create hardship at home that would lead to political pressure against the Kremlin and, many openly hoped, regime change.
None of the above had happened. Predictions of a rapid economic decline and a budget crisis have proven to be greatly exaggerated. The Russian economy did not suffer as sharp a contraction as markets initially expected last year, with the Ministry of Finance assessing the damage at a comparatively shallow 2.7% decline in GDP for 2022 and a 2.3% deficit – well below expectations.
By comparison, Russia’s GDP suffered a near 8% contraction in 2009, 3.7% in 2015, and 3.1% in 2020.
The pain was offset Russia’s all-time record high net export earnings of $580bn, an 18% increase over 2021 and 35% higher than the average surpluses seen over the 2010s, of which two thirds was due to energy exports.
This year is confusing. Clearly Russia will not do as well as sanctions begin to bite, but what is not known is by how much. The IMF predicted that Russia will grow by Russia’s economy would grow by 0.3% but other analysts mostly predict a contraction of a few percent. The Central Bank of Russia (CBR) recently improved its outlook but is still keeping its options open with a -1% to +1% range.
The year got off to a bad start for the budget too with a RUB1.76 trillion deficit – more than half of what is expected for the whole year in just one month. The fall was due to big one-off spending, plus a collapse of oil and gas revenues. However, analysts bne IntelliNews talked to say the spending spike will be contained to January and the oil and gas revenues will recover as the fall was related to the increasingly meaningless price of the Urals brent, that is used to calculate oil taxes, and Ministry of Finance (MinFin) has already dropped it as a benchmark and is using Brent instead. For their part the oil companies are all earning record profits. MinFin is sticking to its 2% deficit for the full year which is entirely possible.
Adding to the confusion is the introduction of the ban on oil product exports on February 5. But as bne IntelliNews has reported already seems clear that Russia will be able to export most of what used to go to Europe to new
7 RUSSIA Country Report March 2023 www.intellinews.com