The Russian Economy Is Resistant to Shocks
What awaits the Russian economy in the near future, and how well are Moscow and the regions of the country holding up under the blow of sanctions? Capital Ideas talked about this with Vladimir Klimanov, Doctor of Economic Sciences, Director of the Center for Regional Policy of the RANEPA, Director of the Institute for Reforming Public Finance, and head of research and consulting projects in the field of economics and finance.
How did the pressure of the West’s sanctions on Russia affect the Russian regions? How well are they taking the blow?
In the Russian regions, the economic situation which has developed as a result of the impact of sanctions by a number of Western countries, and the consequent severance of financial and economic ties, has proven to be very difficult. However, it turns out that the Russian economy has a high degree of shock resistance, or resilience to such large-scale external influences. This was facilitated by both objective reasons – primarily a sharp rise in the prices on world markets of the energy resources and other types of raw materials that are the main Russian exports – and the actions of the authorities to mitigate the negative impact.
How does the Russian capital show itself in the current situation?
Moscow, acting from the viewpoint of its formal status as a subject of the Russian Federation – along with some other very wealthy regions with diversified structures of the economy, higher standards of living of the population, and wide networks of new technologies – has turned out to be more stable than the single-industry parts of the Federation, or regions with less financial opportunities for maneuver. An important role is played by the presence in Moscow of a professional management team capable of promptly making, under very difficult conditions, extraordinary decisions to reorient the economy of a global city toward new development trajectories.
How effectively are the Russian authorities counteracting Western restrictions?
In just a few months, the federal government, individual ministries and departments – along with the Central Bank, and after them the leadership of the regions – have taken hundreds of measures aimed at increasing the stability of the economy as a whole, as well as supporting systemically important enterprises, small and medium-sized businesses, and certain groups of the population. Prompt action by the authorities has become possible also because many such measures and tools were developed and tested two years ago, during the coronavirus pandemic.
The government commission on improving the stability of the economy has worked essentially continuously since that time, and in mid-March approved the first extensive plan of priority actions in the face of external sanctions pressure. The mission to gather the best practices of the subjects of the Federation, in terms of confronting the challenges of the new reality of 2022, was undertaken by the profile commission of the State Council headed by Moscow Mayor Sergei Sobyanin. In particular, as part of a new approach to import substitution, measures were launched which have helped manufacturing industries to adapt to their external challenges.
Has the format of import substitution changed over time?
Import substitution began to be in demand in Russia after the first Western sanctions in 2014. This year, support for enterprises is focused not on a simple search for opportunities to replace goods previously purchased abroad, the supply of which to our country has stopped or is stopping – including in connection with the departure of foreign manufacturers from Russia – but on ensuring a full-fledged platform for achieving technological sovereignty. Gradually, the packages of measures have begun to include more and more detailed tools to solve specific individual tasks, sometimes of a very narrow nature. At the same time, it is necessary to look for solutions to new problems arising in connection with the adoption of new economic sanctions by Western countries. Therefore, while uncertainty remains about the development of the economy and the condition of particular businesses, in order to avoid the possibility of strengthening sanctions, the measures being developed and other information simply are not always public.
What can serve to strengthen the economic stability of Russia?
Of course, most effective are direct regulatory measures, involving financial support from the budget or exempting certain payers from expenses related to the payment of taxes, duties or other expenses owed by them to the state – for example, the rent for the use of state property. Thanks among other things to the vigorous actions of federal and regional authorities, contrary to spring forecasts, production did not begin to decline until mid-summer – although there has already been a negative trend in the dynamics of the GNP.
What awaits the Russian economy, and what should we be prepared for?
Forecasts are more difficult. The expectations of Russian and international experts boil down to the fact that this year there will be both a drop in production and high inflation. Unemployment is also likely to rise. Therefore, positive indicators of the current state of the economy, social sector, and budget of Moscow and other regions of Russia do not give grounds to calm down: the onslaught of Western sanctions continues, and further actions are required to minimize their negative impact.