Previous Quarterly Editions
Expropriation Risk: 57 57 57 58 ▲ Political Violence Risk: 59 58 59 59 ► Terrorism Risk: 55 52 50 48 ▼ Exchange Transfer and Trade Sanction Risk: 64 55 64 55 ▼ Sovereign Default Risk: 47 47 47 47 ►
TREND ▼
In April 2021, President Vladimir Putin signed into law a bill which allows him to stand for re-election when his current six-year term ends. In June 2020, the authorities held a five-day nationwide referendum concerning a host of constitutional amendments, including lifting the presidential two-term restriction. The referendum produced 78% in favour. The changes enable Putin to run for the presidency again in 2024 and 2030, potentially extending his time in office until 2036. Although he has said he has no plans to stand again, this constitutional amendment can be seen as a signal to any Russian elite members who may be thinking of positioning themselves for a post-Putin era that a succession, and discussion of it, are off the agenda until the 2030s.
Despite the smooth adoption of the elections bill, the start of 2021 was marked by mass protests led by opposition activist Alexey Navalny and his Anticorruption Foundation (FBK). The unprecedented protests led to a crackdown, first on protesters themselves and later on the FBK, Navalny’s inner circle and many independent and opposition-minded Russian media.
The authorities’ clampdown notwithstanding, Russia’s political climate is poised to remain volatile throughout 2021 amid COVID-19 -- which the authorities try to downplay but whose fallout for ordinary Russians and the broader economy, already characterised by rampant inequality, will be felt for a long time. The main source of political uncertainty is COVID-19’s duration.
The Kremlin has been largely successful in deflecting blame from itself so far. However, a deepening health crisis could make this unsustainable. State figures show that new COVID-19 daily infections jumped above 20,000 at end-June, almost back to the December 2020 numbers when the pandemic hit a peak, while daily deaths surpassed 800 for the first time in mid-August.
The economic situation of many Russian households and businesses remains precarious because of inadequate state support measures, high levels of personal and corporate debt, stubbornly high food and housing prices, and the large size of the informal economy.
TREND ▲
There is no indication that the Russian government intends specifically to target foreign firms for possible expropriation over confirmed or alleged violations of the law. Russia needs foreign capital and technology to develop the economy. That said, numerous foreign-owned businesses have opted since 2014 to leave the country amid political uncertainty, sluggish economic growth, endemic corruption and elevated sanctions risk; it is possible that tit-for-tat retaliation over sanctions policies could impact foreign-owned firms.
TREND ►
The new protest movement that emerged in early 2021 -- after the release of an investigation by Navalny’s FBK, which alleged that a luxurious palace had been secretly constructed for President Putin in southern Russia -- has petered out. The protests initially drew heavy numbers but were suspended in February until mid-2021 amid a police crackdown. Except for a day of sporadic street action on April 21, the protests have not resumed since.
With Navalny serving a prison term since February, the FBK was labelled an extremist organisation by a Moscow court in July and all its regional branches have been disbanded by the authorities. Navalny’s key associates have either left Russia for self-exile or been persecuted on various grounds (for example, for not wearing masks in public spaces or for calling for unauthorised rallies).
In a parallel move, the Russian authorities have been leading a massive legal attack against a host of opposition and independent media by labelling them as well as individual journalists “foreign agents”. This designation has already resulted in the closure or suspension of several prominent publications. In the absence of opinion leaders and sufficient infrastructure to initiate a new protest movement, Putin’s administration is facing no serious challenge to its policies. The parliamentary elections of September 2021 -- albeit once again considered to have been fraudulent by independent experts -- reconfirmed the ruling United Russia party’s constitutional majority (above 300 seats in the Duma) with 324 seats versus 343 since September 2016.
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. Nonetheless, law enforcement regularly reports on the arrests of presumed terrorist group members and terrorist attacks that have been prevented. For example, in late August 2021, the Russian Federal Security Service (FSB) arrested 31 members of a Salafist militant group in a sting operation involving four Russian regions.
In mid-April, the Biden Administration expanded US sanctions against Russian sovereign debt by prohibiting US financial institutions from participating in transactions with both non-ruble (as in force since August 2019) and ruble-denominated primary-market debt. The share of non-resident investors in the Russian Treasuries (OFZ) market had by then already dipped below 20%, down from a record high of 35% in March 2020. As the US government has so far refrained from decreeing sanctions against Russia’s secondary market for sovereign debt, that share rose back to above 20% by August. Debt-related and other potential broad-based sanctions are a continuous risk for the stability of the ruble’s exchange rate.
The central bank’s foreign reserves stood at USD595.6bn at end-August 2021, a slight year-on-year increase compared with USD590.8bn. In August 2021, the Urals crude grade traded on average for USD68/barrel, or 50% more than a year earlier. Anything above USD43.3/barrel (in 2021 prices) goes straight into the National Wealth Fund, providing Russia with an additional cushion against potential macroeconomic shocks in the future.
Although Russia’s sovereign debt rose by a record 40% in 2020 and by a further 7.8% in the first half of 2021, it still accounts for only 17.7% of projected gross domestic product, according to an Accounting Chamber report. Therefore, debt is not a major problem for Russia in the medium term.
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