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Expropriation Risk: 79 80 80 74 ▼Political Violence Risk:60 60 60 66 ▲Terrorism Risk:60 60 60 60 ►Exchange Transfer and Trade Sanction Risk: 82 82 82 73 ▼Sovereign Default Risk:74 74 74 82 ▲
TREND ►
Protest intensity to date* 2022 2023 Very High LowUnrest risk in 2024**Cost of living: HighAnti-austerity: High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Russia’s gross external debt has been in steady decline since July 2022 when it amounted to US$475 billion. By July 2023, it had fallen to US$347.7 billion, or just 14.7% of GDP — a record low. Russia’s current debt load is therefore comparable to the year 2007, during which it fluctuated between US$315 billion and US$355 billion. In absolute terms, the country’s gross external debt peaked at US$734 billion in 2014. Expressed as a share of GDP, the level was highest back in 1999 (91%), the year when Vladimir Putin, the current president, came to power.
The content of this document is believed to be accurate at the time of publishing but due to the rapidly evolving situation, changes are occurring frequently and this information may have been superseded. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. WTW is not in a position to provide any advice in relation to sanctions. Please ensure you taking advise from you own legal and/or other professional advisors before taking any action. The views expressed in the section are the opinion of Oxford Analytica and do not necessarily reflect those of WTW.
Recent declines in Russia’s total debt burden are primarily due to the effect of Western economic sanctions, themselves one aspect of the Western response to the Russian invasion of Ukraine in February 2022. On the one hand, non-resident holders of Russia’s public debt disposed of their local assets massively in favor of resident investors, often at steep discounts.
On the other hand, numerous corporate debt issuers were barred by sanctions from raising overseas funding while they still paid down their foreign liabilities. Some of them took advantage of a new legal mechanism to substitute so-called “replacement bonds” denominated in rubles, which were largely acquired by Russian banks, for Eurobonds issued to non-residents before 2022.
Among the world’s largest economies, Russia’s debt situation has the least bearing on the country’s domestic politics or socioeconomic stability, compared with such other macroeconomic factors as the deteriorating trade balance, rising military expenditure fueled by energy exports amid cuts to social spending, and greatly diminished investment attractiveness in the context of sanctions and simmering tensions with the West.
TREND ▼
Following the invasion of Ukraine, over 1,000 foreign brands have withdrawn from the Russian market, both voluntarily and under pressure from sanctions. In response, Russian authorities began to create obstacles for future withdrawals.
For example, in August 2022, President Putin prohibited foreign investors from disposing of their stakes in banks and energy firms without prior governmental authorization. One month later, the prohibition was extended to all limited liability companies owned by non-residents from so-called “unfriendly nations.” In December 2022, the government made the sale of Russian-based assets by such non-residents contingent on a 50% or higher discount to the fair market value of the assets and the payment of an exit tax.
In April 2023, Putin issued a decree ordering the placement under “temporary administration” of the Russian assets of Germany’s Uniper and Finland’s Fortum — largely seen both inside and outside Russia as de facto nationalization. The move was justified by the earlier government takeover of Gazprom and Rosneft assets in Germany, officially in the name of energy security. In July, Putin ordered similar measures against France’s Danone and Denmark’s Carlsberg.
The risk of outright expropriation of Russian assets remains high for all companies headquartered in any of the “unfriendly” jurisdictions.
TREND ▲
The ongoing Russian invasion initially led to a wave of anti-war protests, resulting in the arrests of more than 12,000 people between the launch of the military campaign and March 13, 2022, when the protest movement fizzled amid a severe crackdown. On March 4, Putin signed into law a bill criminalizing the spreading of “fake news” about the war and the Russian armed forces, with a maximum penalty of 15 years of imprisonment. The likelihood of new protests will be low so long as the Putin regime keeps a firm grip on the sprawling security apparatus.
While the authorities have continued to expand their foreign agents list (which is 532 strong as of September 2023), designating both natural and legal persons for allegedly receiving funding from abroad, they have also launched a head-on assault on domestic opposition and Western media, including social media. For instance, both Facebook and Instagram have been banned, with their owner Meta having been designated an extremist organization.
No significant terrorist incidents have occurred in a major Russian city since 2017, when a suicide bomber attacked an underground train in St. Petersburg. Since the invasion of Ukraine, the Federal Security Service has been regularly arresting groups of “Ukrainian nationalists” and their Russian sympathizers for allegedly plotting attacks against Russia.
Regular acts of sabotage and guerrilla warfare have occurred in the European part of Russia and Crimea, in addition to the shelling of the neighboring Russian regions by the armed forces of Ukraine. On July 17, 2023, the Kerch Strait bridge was damaged by a Ukrainian seaborne drone, following previous damage in a major explosion in October 2022.
The invasion of Ukraine has led to the imposition of unprecedented economic sanctions on Russia, including multi-jurisdictional freezes of the Russian central bank’s overseas assets, restrictions on sovereign debt trading, and bans on the sale of certain currencies to Russia.
Faced with an impending liquidity crisis, the authorities have enacted drastic capital controls, for example, freezing until March 2024 (as last renewed) withdrawals from foreign currency bank accounts above a US$10,000 limit, prohibiting the transfer of foreign currency exceeding regularly updated thresholds, and allowing both sovereign and corporate debt to be paid in rubles. In March 2022, Putin instructed the government to start collecting revenue from the sale of natural gas by Gazprom in Europe in rubles only.
Other Western restrictions include the disconnection of a dozen Russian banks (including the country’s largest, Sberbank, and second largest, VTB) from the SWIFT messaging system; U.S., EU, and U.K. asset freezes on Alfa Bank, the largest private bank; and an ever-expanding range of export controls, especially in relation to military technology and dual-use goods that Russia could use for its weapons programs.
Since February 2022, the United Kingdom, European Union, United States, Canada, and Japan have frozen the Russian central bank’s foreign currency reserves held within their jurisdictions. Russia’s finance ministry estimates that some US$300 billion has been immobilized out of the total of US$634 billion.
These freezes — in addition to the United States, European Union, and United Kingdom prohibitions on the transfer of U.S. dollars, euros, and pounds sterling to Russia — prompted Putin to install stringent capital controls and to allow paying down both sovereign and corporate debts in rubles.
Although all three key credit rating agencies (Standard & Poor’s, Fitch and Moody’s) withdrew their Russia ratings in March – April 2022 because of Western sanctions, Moody’s declared Russia to be in default on its foreign-currency sovereign debt on June 27, 2022, for the first time since 1918.
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