Western sanctions are now causing “unprecedented” damage to the Russian economy, which is facing an eye-watering budget deficit of £40billion, a Ukrainian economist and adviser to President Volodymyr Zelensky has said. Vlad Vlasiuk was commenting on figures released by Rosstat, the Russian government’s official statistics service, indicating gas and oil companies were being clobbered hard, with estimates also suggesting well over one million young people left the country last year.
According to Rosstat, commercial business profits in 2022 fell by 12.6 percent compared to the previous year, he pointed out, with energy giant Gazprom reporting a colossal 72 percent drop, and the earnings of Russian state-owned enterprises (SOEs) earnings reduced by 52 percent.
One exception was state-owned Russian Railways, which last year turned a record profits of £2.3billion (226.2 billion rubles), 2.3 times more than in 2021, largely because of the higher demand on freight transportation services as a result of sanctions.
Mr Vlasiuk continued: “Most businesses and investors pulled out of Russia immediately after its aggressive invasion of Ukraine with many others still leaving.
“Therefore, in the initial rush to leave the country, there was high demand for freight transportation services, and this was reflected in the increase in profits throughout the Russian railway sector.
“In the long term, with the evacuations completed and a lack of technological supplies as a result of sanctions, the Russian railways are expected to encounter severe challenges.
“To ensure this happens, we need to sustain a joint effort to prevent sanctions evasion and tighten the sanctions regime further.”
Russian banks were also feeling the pinch, according to the Rosstat figures, with profits down 90 percent in 2022.
Mr Vlasiuk said: “Sanctions have left a considerable mark on banks and banking systems in Russia.
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“For example, VTB Group, which includes VTB Bank, Russia’s second-largest bank, recorded a loss of 614 billion rubles.
“Most of Russia’s banks need partners outside the country, such as Iran, to facilitate transactions, a process that significantly increases costs.
“Furthermore, the Russian government has implemented legislative changes restricting the ability of banks to do transactions, particularly for military personnel.”
It was important to consider the measures which Russian banks were taking to navigate the sanctions-imposed environment in order to remain profitable, Mr Vlasiuk stressed.
He said: “If the objective is to weaken Russia’s financial sector – and trigger spill-overs into the real economy, for example, via the credit channel – additional sanctions on banks are needed.”
Ultimately, the impact would be felt by Russia on the battlefield, Mr Vlasiuk predicted – provided the West held its resolve.
He said: “While sanctions have had a huge impact, the Russian government is still able to supply its troops to continue its war of aggression in Ukraine.
“There is a strong need to tighten sanctions on the defence industry and implement them effectively with sufficient force.”