In its October report, the Kyiv School of Economics (KSE) said the Russian economy is recovering from the initial shock caused by the war in Ukraine and Western sanctions.
Therefore, the Ukrainian think tank called for strengthening sanctions, especially in the energy sector “to reduce Russia's access to foreign currency and the possibility of increasing military spending.”
The October report “Macroeconomic situation shows signs of improvement, sanctions need to be tightened” released by the KSE provides an overview of Russia's economy, foreign trade, financial and monetary policy.
“The effectiveness and credibility of energy sanctions against Russia are under threat. The key mechanism by which the embargo on Russian oil and the G7/EU price cap have weighed on export earnings and budget revenues – the gap between Russian supplies and global prices – is showing signs of trouble,” KSE said.
“Decreased export volumes play a role, but so does Russia’s growing ability to rely on its tanker fleet to circumvent sanctions. These issues need to be addressed urgently to maintain pressure on Russia and ensure that the sanctions regime remains credible.”
The Kiev-based think tank stressed that the Russian economy is recovering from the initial shock of the war and sanctions. “Therefore, it is important to strengthen sanctions, especially in the energy sector – to reduce Russia’s access to foreign currency and the possibility of increasing military spending,” KSE said in the report.
The agency called on the West to take immediate action to address compliance with price controls, “to protect the credibility of the sanctions regime.”
Gazpromneft MNPZ Moscow Oil Refinery Joint Stock Company in Moscow, Russia, October 27, 2022. Photo: Euractiv
In September this year, Russia's oil export income reached $18.8 billion, the highest since July 2022, and the current account surplus in the third quarter of 2023 increased to $16.6 billion (compared to $9.6 billion in the second quarter of 2023).
“If foreign currency inflows increase further and budget revenues continue to rise, the Kremlin will be able to pursue a more flexible fiscal and monetary policy in the face of war and sanctions,” KSE said.
While the 50% drop in the value of the ruble since last fall is a sign of a less supportive external environment, it has helped reduce the federal budget deficit to 1.7 trillion rubles in the January-September period this year, broadly in line with the original target.
“This improvement will allow the Kremlin to significantly increase defense spending next year – by 68% compared to the estimated results for 2023,” KSE said.
Overall, the Russian economy is recovering. According to the Central Bank of Russia (CBR), the International Monetary Fund (IMF) and the World Bank (WB), Russia's real GDP is expected to grow by 1.6-2.2% this year. Growth is expected to reach 1-1.5% in 2024. However, the recovery of business activity could be hampered if the ruble depreciates further, forcing the CBR to raise interest rates again.
The CBR set the official exchange rate for the US dollar at 97.3724 rubles to 1 USD on October 19, 3 kopecks higher than the previous figure. The euro exchange rate was also increased by 15 kopecks to 102.9059 rubles to 1 euro. Meanwhile, the official exchange rate for the Chinese yuan (RMB) remained unchanged at 13.2881 rubles to 1 RMB .
Minh Duc (According to IntelliNews, TASS)
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