Previous Quarterly Editions
Expropriation Risk: 79 80 79 80 ▲Political Violence Risk:85 60 60 60 ►Terrorism Risk:48 58 60 60 ▲Exchange Transfer and Trade Sanction Risk: 64 73 82 82 ►Sovereign Default Risk:66 66 74 74 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Very High Low
Cost-of-living protest risk in 2023*Wage protest: LowFood/fuel policy protests: Medium
*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 calculations, see the introductory essay.
After 4.7% growth in 2021, Russian GDP registered a 2.1% contraction in 2022, amid unprecedented Western sanctions caused by the ongoing Russian invasion of Ukraine since February 2022. The economy was buoyed by high energy prices to defy earlier forecasts of a deep recession, at 7-9% negative growth. Forecasts for 2023 are mixed across the board, with the Organisation for Economic Cooperation and Development predicting a return to slow growth (0.3%) versus the European Bank for Reconstruction and Development’s forecasting a 3% contraction.
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but due to the rapidly evolving situation, changes are occurring frequently and this information may have been superseded.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.
Days after the invasion began, the central bank of Russia hiked the benchmark interest rate from 9.5% to 20%, in a bid to stabilise the ruble and keep inflation in check, only to lower it to 7.5% as of late September. As a result, 2022 annualized inflation did not exceed 12%, against earlier forecasts of at least 18-20%. To a significant extent, this was helped by a massive contraction of import volumes as Western brands began leaving Russia and sanctions disrupted transport links.
The Russian central bank expects inflation to not exceed 7% in 2023. However, the recent weakness of the ruble against the backdrop of rapidly declining oil and gas revenues (only partially offset by OPEC+'s production cuts with Russia having to export energy greater distances) poses a serious challenge. The resumption of more expensive imports is also likely to drag consumer price inflation well above the monetary authorities’ yearly target.
The same expectation applies to Russia’s record budget deficit. For the whole of 2023, the federal budget should have a planned
deficit of 2.9 trillion rubles, but an interim deficit has already surpassed 4 trillion in Q1 alone, subject to a subsequent correction of accounting discrepancies.
The Putin administration has been unusually generous with handouts to members of the Russian armed forces and volunteers fighting in Ukraine plus their families, households with minor children, pensioners, and disabled people. In March, the Russian state statistics agency reported the share of Russians living below the national poverty line had decreased to 10.5%, which is the best showing going back as far as the early 1990s.
The positive effects of these one-off or even regular social benefits are unlikely to be lasting, though, as the government is increasingly putting the economy on a war footing. Between March 2022 and March 2023, the share of classified budget spending – likely to be on the military and security services – doubled to 2.4 trillion rubles, whereas spending on social programmes declined by 17%. However, there are no signs yet of game-changing social unrest as the Russian economy retains sufficient room for manoeuvre.
TREND ▲
Following the invasion of Ukraine, more than 1,000 foreign brands have withdrawn from the Russian market, both voluntarily and under pressure from sanctions. Although the Russian government has not yet gone so far as to nationalize foreign-owned assets as has been mooted, it has created obstacles for definitive withdrawals.
For example, in August 2022, Russia’s President Vladimir Putin prohibited foreign investors from disposing of their stakes in banks and energy firms without prior governmental authorization. In September, the prohibition was extended to all limited liability companies owned by non-residents from so-called ‘unfriendly nations.’ In December, 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.
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. In March Putin criminalized spreading ‘fake news’ about the conflict and Russian armed forces, with the maximum penalty of 15 years of imprisonment. In 2022, the General Prosecutor’s Office opened 187 criminal cases. The likelihood of new protests will be low while 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 421-strong as of March 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. In September 2022, the Russian Supreme Court ordered the closure of Novaya Gazeta, a leading opposition newspaper which had been led for a total of 25 years by the 2021 Nobel Peace Prize laureate Dmitry Muratov.
There have been no significant terrorist incidents 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 arrested several groups of ‘Ukrainian nationalists’ and their Russian sympathisers for allegedly plotting attacks against Russia.
There have been regular acts of sabotage and guerrilla warfare in the European part of Russia and Crimea, in addition to the shelling of the neighbouring Russian regions by the armed forces of Ukraine. In October 2022, a major explosion occurred at the Kerch Strait bridge, destroying two west-bound vehicular spans, and severely damaging the railway span.
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 the U.S. and EU bans on the sale of their currencies to Russia.
Faced with an impending liquidity crisis, the authorities have enacted drastic capital controls, for example freezing withdrawals from foreign currency bank accounts above a USD10,000 limit until September 2023, 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 disconnecting a dozen Russian banks – including the country’s largest, Sberbank, and second largest, VTB – from the SWIFT messaging system. There have also been U.S., EU and U.K. asset freezes on Alfa Bank, the largest private bank, and a wide range of export controls, such as the ban on the sale of Boeing and Airbus aircraft, spare parts, (re)insurance, leasing, and other services.
Since late February, the U.K., EU, U.S., Canada, and Japanese governments have frozen the Russian central bank’s foreign currency reserves held within their jurisdictions. Russia’s finance ministry estimates some USD300 billion has been immobilized out of USD634 billion as of mid-February 2022.
These freezes, in addition to the U.S. and EU bans on the transfer of U.S. dollars and euros to Russia mentioned above, have 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 and Poor’s, Fitch, and Moody’s) withdrew their Russia ratings between March 25 and April 8 2022 because of Western sanctions, Moody’s declared Russia to be in default on its foreign-currency sovereign debt on June 27, for the first time since 1918.
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