Russian Journal of Economics 1 (2015) 359–385
Available online at www.sciencedirect.com
ً The updated English version of the article published in Russian in Voprosy Ekonomiki, 2016, No. 1, pp. 5–35.
This article represents an extended version of the report “Scenarios of development for the Russian economy in
the conditions of sanctions and falling oil prices” produced for the Civil Initiatives Committee in December 2014.
* Corresponding author, E-mail address: email@example.com.
Peer review under responsibility of Voprosy Ekonomiki.
on the Russian economy ً
a,*, Ilya Prilepskiy
a Economic Expert Group, Moscow, Russia
b Financial Research Institute, Moscow, Russia
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ly affected sanctioned state -controlled banks, oil, gas and arms companies by severely
constraining foreign funding and have indirectly affected non-sanctioned companies by
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($160–170bn) due to Russian companies’ self -adjustment, which is evidenced by their
utili zation of foreign assets accumulated earlier for debt repayment and an overall decrease
by 2017, compared with a hypothetical scenario with no sanctions) but 3.3 times lower
than the estimated effects of the oil price shock.
-(/FODVVL¿FDWLRQ: F32, F37, F47.
In March 2014, the EU, the U.S. and a number of other states introduced
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and restricted Russian oil and gas companies’ access to advanced production
techno logies. In response, Russia imposed an embargo on a wide range of agri-
be no chance of the sanctions being lifted any time soon, although the situation in
Ukraine has somewhat stabilized: in June 2015, the EU announced the extension
of the sanctions until at least the end of the year (and in December 2015, they
were further prolonged until July 31st, 2016 at the very least), while the U.S. ac-
tually expanded the list of companies falling under its sectoral sanctions. In turn,
Russia prolonged its food embargo for another year.
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still has been no convincing evaluation of their effects, and there is no consen-
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IMF (2015) report on the Russian economy indicates that the sanctions and retalia-
tory sanctions may lead Russia to experience a reduction in GDP of 1.0%–1.5%
over the short term, although the accumulated loss may reach 9.0% of GDP over
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tions between 8% and 10% of Russia’s GDP but posit that compensating measures
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cate the time horizon over which this effect may be achieved (Shirov et al., 2015).
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assessed rather tentatively: these authors assumed only that Russia’s private sector
lost all access to the foreign capital markets. Rautava (2014) and Vercueil (2014)
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study (published before the sectoral sanctions were adopted) estimated the impact
as a 1 p.p. reduction in the 2014 GDP growth rate (Rautava, 2014). The second
gradually lifted, GDP would grow an additional 2 p.p. in 2015 than it would un-
of Russia’s retaliatory sanctions on public welfare: based on their static model,
the authors estimated a reduction of 0.25%.
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sult of their economic nature, such borrowing limitations are similar to a sudden
ties in the private sector decreased by USD 37 billion, which sharply contrasted
tors that are driven by economic logic, whereas in this case, the drop occurred
due to administrative restrictions.
First, we evaluate the impact of the sanctions on the basic components of
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capital from Russia. Then, we conduct a scenario analysis (for the medium term)
We assume that there are only limited effects over the medium term with respect
to oil and gas sanctions (due to reduced production) and technological sanctions
(due to slower productivity growth caused by problems with importing dual-use
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FDQW FRQVHTXHQFHV RI WKHVDQFWLRQV LQ WKHIRUHVHHDEOH IXWXUH 7KHSUHYDOHQFH RI
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investment and consumption, is also noted in other works (IMF, 2015; Sinyakov
et al., 2015; Shirov et al., 2015). Unlike these studies, our research presents a more
detailed analysis of the impact of sanctions on basic macroeconomic indicators as
well as on the components of the balance of payments.
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owned companies in the fuel/energy sector (Rosneft, Transneft, Gazpromneft)
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there are the more severe SDN sanctions that prohibit foreign exchange payments
(affecting banks and companies whose owners were subjected to personal sanc-
tions). Second, many Russian banks are affected by the so-called “soft” sanc-
tions, which means stricter technical control over transactions that typically slows
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“stage” of their impact on the economy) are considered by Ulyukaev and Mau
x Increasing uncertainty (beginning even before the sectoral sanctions were in-
troduced) slows down consumption due to rising precautionary savings (often
in USD) and dwindling investments due to higher risk premiums;
investment opportunities for companies. Moreover, restrictions on technology
exports to the Russian Federation constrain the potential growth of total factor
x Production in sectors dependent on imported components suffers from the ruble ’s
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global capital markets during the preceding period. In 2006, the main restric-
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3% and 6% of GDP.
In the end, by the time the sanctions were imposed, borrowers had accumulated
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of Russia, 12% of the total amount consisted of short-term debt that was to be
repaid within a year, with over 25% of such debt in the banking sector. Notably,
at that moment, the assets accumulated by Russian economic agents exceeded
ted among the various sectors: banks and the public sector had positive net assets
86'ELOOLRQDQG 86' ELOOLRQUHVSHFWLYHO\ZKHUHDVWKHQRQ¿QDQFLDO
sector had negative net assets (–USD 318 billion).
restrictions on credit to Russian borrowers are having substantial additional im-
plications that should also be taken into account to evaluate the full effect of
Direct effects mean restrictions placed on the foreign borrowings of Russian
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as of July 1, 2014
Including foreign debt 733
Including short-term 86
General government and the Central Bank 472
Including foreign debt 73
Including short-term 8
Banking sector 38
Including foreign debt 209
Including short-term 54
Other sectors –318
Including foreign debt 451
Including short-term 24
system, which has actually become a single marketplace. For example, the likeli-
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from U.S. regulators.
Indirect effects. The persistent geopolitical tension, the potential for new sanc-
tions or an expanded interpretation of existing sanctions by U.S. and EU regu-
lators, in addition to the chance that Russia will impose changes to the “rules
of the game” (e.g., restrictions on capital transactions) are viewed by investors
as an important source of additional economic risk. Thus, the attractiveness of
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issuers that are subject to the sanctions, the indirect effects have more compo-
Reaction to the sanctions. The direct and indirect effects that prevent foreign
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The “affected” issuers can react to the sanctions in a number of ways, ranging
from buying in domestic foreign exchange market funds to repay the debt, to sell-
an important role in determining the overall estimated effects of the sanctions.
Second-order effects involve changes in key macroeconomic indicators (ex-
change rates, prices, exports and imports, etc.) in response to reduced net capi-
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payments by means of a combination of an increase in the current account and
justments were considered by Gurvich and Prilepskiy (2013), who note, in par-
supply rather than on domestic demand.
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the aforementioned channels. For example, it is clear that a sharp decrease in
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banks on the sanction list may be caused by both direct and indirect effects, i.e.,
the unwillingness of countries that did not impose sanctions to lend to them due
to their concerns about the potential negative reactions by U.S. and EU regu-
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the amount of foreign debt securities and public banks’ syndicated loans was re-
duced by USD 11.2 billion during the second half of 20142. This result demon-
strates that those banks and companies affected by the sanctions were, to a great
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ties in the banking sector dropped by USD 30.8 billion during the second half of
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creased by more than USD 15 billion despite the fact that the major companies
affected by the sanctions (e.g., Rosneft and Gazpromneft) had no foreign debt
securities to be repaid during that period.
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USD 83.6 billion and that of banks and companies that were more than 50%
publicly owned fell by USD 41.1 billion (without considering liabilities to direct
the contribution of transactions and FX revaluation to changes in foreign debt by
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basis, the effect for private banks and companies (those not directly affected by
the sanctions) is at least comparable to that for public companies, even if only
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channels of the sanctions’ impact, which include, in particular, the decreased
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of 2015 against the background of generally increasing uncertainty concerning
the prospects for the Russian economy related to falling oil prices, and this rate
remains close to zero for the banking sector.
Notably, indirect reactions to the sanctions include reduced gross capital in-
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approximately 1/5 of the foreign debt of Russian issuers is denominated in rubles).
Repayment of foreign loans by banks subject to sanctions during the second half of 2014 (USD billion).
%DQN Debt securities Syndicated loans Total
Sberbank 0.9 4.2 5.1
97% 0.1 3.1 3.2
Gazprombank 1.7 1.2 2.9
Total 2.7 8.5 11.2
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which was likely due to concerns about the possibility of Western sanctions and
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Russia’s sovereign rating, which was likely to have automatically led to sales of
securities by many institutional investors.
investing in Russian assets, the sanctions also resulted in changes to the deci-
sions made by Russian banks and companies regarding investment in foreign
assets, i.e., in an active reaction. This effect was most noticeable during the third
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by USD 29.9 billion in anticipation of major foreign debt repayments during
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asset accumulation slowed abruptly (both in terms of direct and portfolio invest-
chandise trade, etc.”).
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20153), as well as for similar periods from preceding years. These data show
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the effects of the sanctions. The magnitude of these changes depends on many
We will call this period the “sanction period” for brevity.
Period %DQNV 2WKHUVHFWRUV
2Q 2015 5 98
1Q 2015 7 60
4Q 2014 19 74
3Q 2014 56 93
$YHUDJHIRU4WKURXJK4b 120 120
2010 157 113
2011 144 183
2012 174 142
a The change in foreign debt from transactions, divided by anticipated foreign debt repayments (from
and Rosneft and are not included in the calculations for this reason.
factors, such as export revenues (most importantly) as well as the exchange rate,
interest rates, investment demand, etc. Next, we examine the basic factors that
must be taken into account in evaluating the effects of the sanctions:
x 7KHFRQVLGHUDEOH LPSDFW RQ FDSLWDO ÀRZV GXULQJ WKHSHULRG VLQFH WKHWKLUG
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also by falling oil prices and the associated revised forecasts of the prospects
and investment attractiveness of the Russian economy;
to some experts’ estimates) is related to funds transferred from Russian compa-
be explained not only by the reaction to the sanctions but also by the measures
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explained by changes in the variables generally used in the models by leading
those in developed countries and, second, the VIX volatility index calculated by
Thus, to correctly evaluate the effects of the sanctions, we must distinguish
between their effects and those of other factors. The general approach applied
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Certain components of the balance of payments (USD billion).
Sector July 2010 –
July 2011 –
July 2012 –
July 2013 –
July 2014 –
General government 3.5 8.1 13.8 1.5 –9.9
Liabilities 3.5 8.1 13.8 1.5 –9.9
Banks 1.8 5.0 –13.7 –19.2 –8.5
Debt liabilities 31.6 24.3 33.8 0.1 –37.3
$VVHWV –29.8 –19.3 –47.5 –19.3 28.8
Other sectors (without cash
–14.9 –2.9 –23.2 –1.0 –55.8
Direct investment –16.8 –19.2 –18.2 –12.6 –35.7
Liabilities 45.6 38.3 70.6 39.3 2.2
$VVHWV –62.3 –57.5 –88.8 –51.9 –37.9
Loans 1.8 16.3 41.4 11.5 –20.2
Liabilities 1.8 16.3 41.4 11.5 –20.2
Cash foreign currency 6.7 0.2 4.0 –17.2 –10.9
Total –3.0 10.5 27.2 –36.0 –85.1
Liabilities 82.5 87.0 159.6 52.5 –65.1
$VVHWV –85.5 –76.6 –132.4 –88.4 –20.0
period, which means that we calculated values that might have been observed
without the sanctions but with the actual values of the rest of the exogenous in-
dicators (such as oil prices and the foreign debt repayment schedule). We view
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determining the estimated effects because the combination of sanctions, falling
was not consistent with the fundamentals (i.e., a clear overshooting occurred),
turn, had a positive feedback with the demand for foreign exchange cash, lead-
In other words, the situation at the end of 2014 was caused not only (and not to
the greatest extent) by the combination of objectively measured economic factors
In the end, for purposes of evaluating the effects for 2014 (more precisely,
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2014, whereas the simulations for 2015 through 2017 were based on the calcu-
lated values of deviation for the components of the balance of payments from
prices (3Q 2014), the passing of the price “trough”, the very high uncertainty re-
garding economic prospects (1Q 2015), a slight rebound in prices and reduced
discussed “background” volatility of indicators do not allow the analysis to be
this manner offer only a general view of the extent of the sanctions’ effects.
indicators, which is to be performed in the second stage, must consider that the ef-
fects of the sanctions immediately lead to deviations from the “normal” trajectory
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value compared with the hypothetical “normal” scenario. For this reason, we built
scription of the potential development trajectory without the sanctions and assum-
ing continuously high oil prices (at USD 100 per barrel). In the second version, at
every step, the foreign capital not received as a result of the sanctions is deducted.
The macroeconomic indicators are then found for the next step, the capital not re-
ceived is again calculated and deducted, etc. Comparing the indicators for the two
versions provides an evaluation of the sanctions’ effects.
We also consider two additional scenarios that are characterized by reduced
oil prices (between USD 50 and USD 53 per barrel) and that correspond to
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Considering these scenarios enables us to evaluate the effects of falling oil prices
and the sanctions separately, with high and low oil prices. Thus, we can under-
stand whether any synergy occurs when the two negative factors are combined,
or if their effects are just added to one another.
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We now consider each of the separate components of the balance of payments
under the sanctions.
3.1. Changes in debt liabilities
To determine the impact of the sanctions on foreign debt liabilities, we used
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gra dually decreasing. We believe that this trend can be explained by the reduc-
tion in investment demand under conditions of decreasing (see Fig. 2) expected
growth rates for the Russian economy (and for growth in domestic demand, ac-
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the previous debt.
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debt under the sanctions was calculated as an average indicator for the sanction
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their foreign debt partially rather than in full (as before) and, second, Russian
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that the share of debt liabilities in the overall reduction of foreign liabilities for
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To evaluate the effects of the sanctions in this area, we applied the calculated
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component of the effect of sanctions (reduced foreign borrowing) is evaluated
at approximately USD 60 billion in annual terms. The majority of this amount
(USD 44.3 billion) consists of borrowings by banks, while the losses in the non-
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trends of foreign borrowing is presented in Fig. 3.
For 2017, we estimate debt repayments by applying the average maturity estimated on the data for 2015–2016.
Fig. 2. IMF forecasts of Russian GDP growth for the next calendar year (%).
on oil prices, GDP, expected economic growth rates, etc. It should be noted that
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LQ RXU RSLQLRQ WKLV DSSURDFK LV MXVWL¿HG EHFDXVH RI WKHTXDOLWDWLYH FKDQJH LQ
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lower predictability of the ruble’s exchange rate.
fdi_in = 7,17 + 0,289 gdp_g(–1) + 0,705 gdp_gf + 25,8 d_2013q1 (1)
(5,15) (2,18) (1,94) (36,4)
7KHGLUHFW LQYHVWPHQW LQÀRZ fdi_in was determined based on the economic
development prospects that we characterized using IMF growth forecasts for
the current year (gdp_gf WKDWDUHSXEOLVKHGRQDTXDUWHUO\EDVLV-DQXDU\$SULO
-XO\2FWREHUDQGODJJHG*'3JURZWK UDWHV gdp_g (–1), or the year preceding
WKHFXUUHQWTXDUWHU7KHGXPP\ YDULDEOH d_2013q1 was added to take into ac-
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³QRUPDO´E\86' ELOOLRQ LQ WKHWKLUG TXDUWHU RI DQG E\ DQDYHUDJHRI
of 2015 (this estimate is used in the medium-term simulation below). The tenta-
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USD 2.5 billion.
ing the 2008–2009 crisis, a general downward trend in the accumulated portfolio
p_in = –3,55 + 1,16 gdpsa_g(–1) + 2,36 d_q1 (2)
(–4,92) (2,57) (3,23)
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86' ELOOLRQ ORZHU WKDQ SUHGLFWHG GXULQJ WKH¿UVW TXDUWHU RI
ter for which report data are available). The average estimate is low in terms
of absolute value; in fact, we consider this component of the overall effect of
3.4. Changes in the foreign liabilities of the public sector
This indicator is relatively stable when measured as a percentage of GDP.
public_in / gdp_doll = 0,00457 (3)
see Fig. 6), which appears to have been caused by the downgrading of Russia’s
also caused by the sanctions against Russia, the main factor is most likely the drop
GHPRQVWUDWH WKHZHDN QHJDWLYH LPSDFW RI WKHVDQFWLRQV RQ ¿VFDO UHYHQXHV LQ
This component of the balance of payments is determined mainly by GDP in
U.S. dollar terms:
fdi_out / gdp_doll = 0,0275 + 0,109d_2013q1 (4)
Fig. 6. Portfolio Investment in Russian government bonds (USD billion).
7KHRXWÀRZ ZDV 86' ELOOLRQ ORZHU WKDQ SUHGLFWHG LQ WKHWKLUG TXDUWHU
of 2014 (see Fig. 7) and was, on average, USD 3.0 billion lower throughout
ment, probably through the channel of foreign investment by oil and gas companies:
p_out = –2,08 + 0,026 urals (5)
7KHRXWÀRZ ZDV 86' ELOOLRQ ORZHU WKDQ SUHGLFWHG LQ WKHWKLUG TXDUWHU RI
ditional deviations in this component are not included in the forecast.
3.7. Changes in assets in the form of cash foreign currency
depending on the nominal exchange rate of the U.S. dollar (the er variable).
cash = –0,141 + 0,598 cash(–1) + 32,1(er/er(–1) –1) (6)
(0,207) (3,13) (1,82)
When estimating the effects of the sanctions in this case, it should be noted
WKDWKRXVHKROGVEHJDQWR EX\ IRUHLJQ FXUUHQF\FDVKDVHDUO\DV LQ WKH¿UVW KDOI
of 2014, due to the escalation of tensions in Ukraine and the pressure on the ru-
a result, the increase in the respective assets was considerably higher than pre-
GLFWHGVHH )LJ DQG WKHVDQFWLRQVLPSRVHG LQWKHWKLUG TXDUWHU GLG QRW OHDG
foreign exchange cash was USD 4 billion higher than predicted. The valuations
FDXVHG E\ WKHSDQLF GXULQJ WKHIRXUWK TXDUWHU RI WKHUHERXQG FRQWLQXHG
the period from 2015 through 2017, we do not include the effects of the sanctions
in the form of increased foreign currency purchases for this period.
In our opinion, the trends for the other assets of the private sector (which in-
panies to the sanctions. Thus, with respect to the banking sector, these assets de-
WR WKHDPRXQW RI WKHSD\PHQWV XQGHU WKHXQUH¿QDQFHG GHEW GXULQJ WKHSHULRG
sibly associated with initial concerns about introducing more severe sanctions,
simulation, we ignored this volatility and simply assumed that the foreign assets
RIIVHW ORVVHV IURP LQVXI¿FLHQW UH¿QDQFLQJ E\ PHDQV RI ORZHU DFFXPXODWLRQ RI
WLRQV ZKHUHDV WKURXJKRXW WKHSHULRG IURP WKURXJK WKHRXWÀRZ RI
Russian capital through this channel averaged 9.6% of goods and services ex-
SRUWVLW KDVUHPDLQHG FRQVLVWHQWO\ EHORZ WKLV PDUN VLQFH WKHIRXUWK TXDUWHU RI
DQG UHDFKHG D³WURXJK´ OHYHORIRIH[SRUWVLQWKHVHFRQGTXDUWHURI
EHIRUHWKHLQWURGXFWLRQ RI VHFWRUDO VDQFWLRQV$V QRWHG DERYH WKLVWUHQG
trend and the secondary effects of the sanctions, we assumed that the accumula-
tion of other assets in our estimates decreases regardless of the sanctions. Thus,
might result in slightly overestimating the overall impact of the sanctions.
3.9. Overall effect for 2014 and the sanction year
In Table 5 and Table 6, we sum up the estimated effects of the sanctions on
WKH¿QDQFLDODFFRXQW FRPSRQHQWV IRUDQGWKHVDQFWLRQ\HDU7KHHVWLPDWHV
for direct investment and public sector liabilities were simply multiplied by four
to put them into annual terms. We derived estimates for debt liabilities for 2014
WKHVDQFWLRQ \HDU ZH XVHG DFWXDO UH¿QDQFLQJ VKDUHV7KHGHFUHDVH LQ EDQN DV-
Fig. 10. 2WKHUDVVHWVLQFUHDVH86'ELOOLRQ
Note: We assume that, in the absence of sanctions, asset accumulation by the banking sector would correspond
debt. In terms of foreign exchange cash, we also considered the effects of the un-
The analysis of these valuations demonstrates that the volume of transactions was
Sector 3Q 2014 Calculated value
for 3Q 2014
of the sanctions
(in annual terms)
Federal government –3.9 2.3 –24.8
Liabilities –3.9 2.3 –24.8
Banks 21.7 2.6 –12.2
Liabilities –8.2 3.7 –38.9
$VVHWV 29.9 –1.1 26.7
Other sectors (without cash
–15.3 0.9 –63.0
Direct investment –12.6 –6.6 –24.0
Liabilities –1.1 7.7 –35.2
$VVHWV –11.7 –14.3 10.4
Loans –2.7 7.5 –39.1
Liabilities –2.7 7.5 –39.1
Cash foreign currency –1.8 –1.7 –16.0
Total 0.7 4.1 –116.8
Liabilities –15.9 21.2 –138.0
$VVHWV 16.6 –17.1 21.1
1Q 2015 and
for the above
of the sanctions
the sanction year
Federal government –3.1 1.7 –12.4
Liabilities –3.1 1.7 –12.4
Banks 3.6 1.5 –10.0
Liabilities –9.2 2.6 –47.2
$VVHWV 12.8 –1.1 37.2
Other sectors (without cash
–10.3 0.1 –41.2
Direct investment –6.5 –4.9 –6.0
Liabilities 1.2 5.8 –18.0
$VVHWV –7.7 –10.7 12.0
Loans –3.8 5.0 –35.2
Liabilities –3.8 5.0 –35.2
Cash foreign currency 1.4 –7.6 –8.0
Total –8.4 –4.3 –71.6
Liabilities –14.9 5.1 –112.8
$VVHWV 6.5 –19.4 41.2
to the banking sector, 18% to the reduction in public sector liabilities and 54% to
WKHQRQ¿QDQFLDOVHFWRU7KXV WKHDFWXDO UHGXFWLRQ LQIRUHLJQFDSLWDOLQÀRZ KDV IDU
exceeded the direct effects of the lending restrictions on public banks and companies.
7KHUHGXFWLRQVLQIRUHLJQ FDSLWDO LQÀRZZHUHSDUWO\ RIIVHW LH E\ E\
ted the net effect of the sanctions for 2014 as a whole (after taking into account
annual terms (6.2% of the GDP).
this result is largely explained by methodological factors: as noted above, the down-
LQJRIWKHH[FKDQJH UDWH GXULQJ WKHIRXUWK TXDUWHURIPDNHLWGLI¿FXOWWRHV-
timate the effects of the sanctions on “public sector liabilities” and “cash foreign
only correspond to the second half of 2014, which is why the data in Table 4 can
be understood on the whole as the minimum estimate for the impact of the sanc-
LQJ WKHVDQFWLRQ \HDU ZKLFK HTXDOV RI *'3 $SSUR[LPDWHO\ RI
this reduction is attributable to the banking sector, 11% to the drop in public sector
OLDELOLWLHVDQG WRWKHQRQ¿QDQFLDOVHFWRU7KHRIIVHWWKURXJK GHFUHDVHGFDSL-
The net effect of the sanctions (including reactions by Russian investors) is esti-
4. Evaluation of the sanctions’ effects in the medium-term
(oil prices) and internal (GDP dynamics) factors that, in turn, depend on oil prices
and sanctions. Therefore, estimates of the medium-term impact of the sanctions
cannot be obtained independently: instead, step-by-step scenario calculations are
4.1. Scenario assumptions
We considered several combinations of oil price dynamics and the effects of
sanctions from 2015 through 2017 (see Table 7). For 2014, annual average oil
Scenario description 2LOSULFHVIRU±
USD per barrel
1% %DVHOLQHZLWKRXWVDQFWLRQV ²² No
2%6 %DVHOLQHZLWKVDQFWLRQV ²² Ye s
3 S Shock without sanctions ²² No
4 SS Shock with sanctions ²² Ye s
The baseline scenario corresponds to the hypothetical version in which oil prices
remain stable and no sanctions are imposed. The second scenario is a combination
DFRPSDULVRQ RI WKHLQGLFDWRUV LQ WKH6DQG %66 DQG %6 VFHQDULRV \LHOGV HVWL-
mates for the effect of falling oil prices without and with the sanctions.
rule out the possibility that they (particularly those imposed by the EU) will be
extend if they remain.
resulting from the sanctions or from anti-offshore government policies): accu-
mulation of other assets is not 9.6% of export revenues (as it was in 2010 through
x ,QWHUPV RI ¿VFDO SROLF\ZH DVVXPHG WKDWWKHH[SHQGLWXUHV LQWKH%DQG %6
scenarios are consistent with the initial version of the budget for 2015 through
2017, as adopted in December 2014;7 for the S and SS scenarios, the 2015
H[SHQGLWXUHV DUH WDNHQ IURP WKHPRGL¿HG YHUVLRQ DGRSWHG LQ $SULO 8
DQG¿QDOO\IRU DQGWKH\DUHWDNHQIURPWKHEXGJHW ELOOIRU
through 2018.9 The same assumptions concern the changes in the volumes of
the Reserve Fund.
2016 and 201710 LQGLFDWH WKDW WKH%DQN RI 5XVVLD VKRXOG HQJDJH LQ IRUHLJQ
exchange interventions in response to increases or expenditures of the Reserve
Fund, such actions have not yet been observed in practice. Moreover, during
WKHVHFRQGTXDUWHU RI WKH%DQNRI5XVVLDSXUFKDVHGIRUHLJQFXUUHQFLHV
DJDLQVWDEDFNGURS RI 5HVHUYH)XQGVSHQGLQJ2XUFDOFXODWLRQVXVHDQLQWHU-
not making foreign exchange interventions in response to transactions involv-
ing Russia’s sovereign wealth funds.
x $QXPEHU RI H[SHUWV H[SUHVVHG WKHRSLQLRQ WKDW WKHVDQFWLRQV LPSRVHG RQ
Russia encouraged a “preventive” reduction in the foreign debt, while other
countries only faced a sharp deterioration in foreign borrowing conditions in
2015, against the backdrop of an expected increase in the U.S. Federal Funds
rate (in terms of the scenarios considered, this would have meant an “addition”
WR WKHQHW FDSLWDO RXWÀRZ IURP WKURXJK LQ ERWK WKH%DQG 6VFH-
QDULRV$V QRWHG DERYHZHFRXOG QRW ¿QGDVLJQL¿FDQWFRUUHODWLRQ EHWZHHQ
some extent in 2016 and 2017.
4.2. Calculations for 2015 through 2017
ODULQGLFDWRUV PD\ EHGLIIHUHQW+RZHYHUZHFRQVLGHUHG WKDW WKHPDJQLWXGHRI
the impact (determined by comparing the scenarios) seemed plausible.
The EEG model on which the calculations are based is built upon econometric
(including cointegrating) estimates of the relationships between the basic macro-
HFRQRPLFDQG ¿VFDOYDULDEOHVIURPWKURXJK DQGWKHPDFURHFRQRPLF
identities connecting them. In particular, we can obtain estimates for the im-
SDFWRIWKHEDODQFHRISD\PHQWVVKRFNVIRUHLJQ WUDGH DQG ¿QDQFLDO VKRFNVRQ
USD 160–170 billion over the period under review. Table 10 shows that these losses
are approximately 2.5 times lower than the total losses from decreasing oil prices
(by the end of the period, the losses from low oil prices are 4 times higher than
account can only be compared notionally. It should also be noted that the impact of
+ 2015 2016 2017 Total for
*URVVFDSLWDOLQÀRZWRWDO –69.0 –84.8 –57.9 –64.3 –276.0
Debt liabilities –39.0 –67.3 –33.8 –44.0 –184.1
Foreign direct investment –17.6 –17.5 –24.1 –20.3 –79.5
General government liabilities –12.4 – – – –12.4
*URVVFDSLWDORXWÀRZ –10.6 –46.2 –26.4 –31.1 –114.3
Net effect from the sanctions –58.4 –38.6 –31.5 –33.2 –161.7
For reference: net effect from
the sanctions as a percentage of GDP
–2.9 –1.8 –1.4 –1.5 –1.9
+ 2015 2016 2017 Total for
*URVVFDSLWDOLQÀRZWRWDO –68.8 –89.4 –58.0 –65.3 –281.5
Debt liabilities –39.0 –67.3 –33.8 –44.0 –184.1
Foreign direct investment –17.6 –22.1 –24.2 –21.3 –85.2
General government liabilities –12.4 – – – –12.4
*URVVFDSLWDORXWÀRZ –10.6 –45.6 –26.1 –30.9 –113.2
Net effect from the sanctions –58.2 –43.8 –31.7 –34.4 –168.1
For reference: net effect from
the sanctions as a percentage of GDP
–2.9 –3.3 –2.4 –2.4 –2.8
7KHQHW HIIHFW RI WKHVDQFWLRQV FRQVLVWV RI DUHGXFHG FDSLWDO LQÀRZ RI URXJKO\
direct effects (through borrowing by banks and companies affected by the sanctions)
as well as indirect effects related to the rest of the borrowers. If we notionally as-
7KHLQFUHDVHGRXWÀRZ RIFDSLWDO VORZV GRZQ GRPHVWLF GHPDQG$VDUHVXOW
JLYHQORZ RLOSULFHV LQWKHVFHQDULR ZLWK VDQFWLRQV JURVV ¿[HG FDSLWDO LQYHVW-
ment is, on average, 3.5% lower than in the scenario without sanctions from 2014
through 2017, while retail sales turnover is 2.6% lower (these calculations, in
accordance with the estimates earlier obtained by the Economic Expert Group,
DVVXPHD¿VFDOPXOWLSOLHU YDOXH RI+RZHYHUWKHLPSDFWRI WKHVDQFWLRQV
falling oil prices have a more profound impact on investment (mainly due to pro-
eliminated. The comparison of investment forecasts as of the end of the period in
shocks) demonstrates that the sanctions reduced investment by 5% on the whole
throughout the period, whereas falling oil prices reduced investment by 24%.
change rate (see Fig. 12). Thus, according to our estimates, the sanctions increased
Fig 11. Impact of shocks on (a) investment growth rates (p.p.) and (b) investment volume (%).
2014 2015 2016 2017 Total
–58 –44 –32 –34 –168
2LODQGJDVH[SRUWYDOXH 0 –122 –141 –135 –398
Note: 7KLV DQGVXEVHTXHQWWDEOHV DQG¿JXUHVVKRZ WKHHIIHFWVIURP WKHVDQFWLRQVXQOHVVRWKHUZLVH VWDWHGDW
low oil prices and the effects from falling oil prices with sanctions.
the exchange rate of the USD by approximately 6 rubles in 2015. This effect declines
and, accordingly, improved balance of investment income (thus, by 2017, the impact
of the sanctions on the annual average USD rate is estimated at as low as 2 rubles).
$ ZHDNHU UXEOH SURYLGHV FHUWDLQ VXSSRUW WR QHW H[SRUWV WKXV WKHLPSRUWV LQ
WKH%6 VFHQDULR LQ WKURXJK DUH RQ DYHUDJH ORZHU WKDQ LQ WKHEDVH-
OLQH VFHQDULR % E\ ZKHUHDV LQ WKH66 VFHQDULR WKH\ DUH ORZHU WKDQ
in the shock scenario (S). Nevertheless, the effects from reduced domestic demand
prevail, as expected, and the GDP in scenarios without the sanctions is higher than in
scenarios with the sanctions (see Fig. 13). Notably, the effect of both shocks remains
VLJQL¿FDQW WKURXJKRXW WKHSHULRG XQGHU UHYLHZ DW ± SS IRU WKHVDQFWLRQV DQG
–1.1 p.p. for falling oil prices). GDP losses that have accumulated over the period
to the results obtained by Sinyakov et al. (2015) (0.5–0.6 p.p.) and, to the best of
our judgment, are lower than the vaguely formulated IMF estimates (according to
which, the effect would “initially” be 1.0–1.5 p.p. and 9 p.p. “in the medium-term”).
It should be noted that the considerable decrease in GDP in response to falling
economy. The real depreciation of the ruble due to deteriorating terms of trade
only slightly increased the volume of exports (because they are dominated by
Fig 13. Impact of shocks on (a) GDP growth (p.p.) and (b) GDP volume (%).
oil and gas exports which are not particularly sensitive to the exchange rate) (see
cant effect on the supply of tradable domestic goods to the domestic market (see
%ODQNHWDO 7KXV WKHPDLQ UHDFWLRQWR IDOOLQJ RLOSULFHVZDV GHFUHDVHG
production of non-tradable goods resulting from falling domestic demand.
cording to estimates by E. Gurvich et al. (2014), was 1.2 p.p. in 2014 and 0.8 p.p.
WLRQ LQ GRPHVWLF GHPDQG XQGHU WKHVFHQDULRV ZLWK VDQFWLRQV UHVWUDLQV LQÀDWLRQ
2014 and 2015, whereas the combined effect on consumer prices is estimated
at approximately 4% for the sanctions and 8% for falling oil prices. Comparing
the accumulated growth of CPI for 2014 through 2017 reveals that the sanctions
add 5.7 p.p. to it, whereas falling oil prices add 11.0 p.p.
$ ZHDNHU UXEOH DQG KLJKHU LQÀDWLRQ XQGHU WKHVFHQDULRV ZLWK WKH VDQFWLRQV
SURYLGHVXEVWDQWLDOVXSSRUW IRU ¿VFDOUHYHQXHVLQ QRPLQDO WHUPVZKLFKDUH QR
OHVV LPSRUWDQW IRU WKHJRYHUQPHQW WKDQ UHDO UHYHQXHV LQ WKH¿UVW DQG VHFRQG
years after the shocks) (see Fig. 15). Moreover, in 2014 and 2015, as a result of
WKHZHDNHUUXEOH WKHVDQFWLRQVHYHQLQFUHDVHGWKHUHDOYDOXHRI ¿VFDOUHYHQXHV
In other words, we are facing a paradox: ,QWKHLULQLWLDO\HDUVWKH¿QDQFLDOVDQF-
tions help the government overcome possibly the most painful consequences of
IDOOLQJRLO SULFHVLH WKHVKDUS UHGXFWLRQLQ ¿VFDO UHYHQXHV, whose real value
falls by almost 20% over two years, mainly due to cheaper oil.
%HFDXVHWKH%DQNRI5XVVLDZLOOQRWLQWHUYHQHLQWKH); PDUNHW IURP
through 2017, based on the assumptions above, adjusting the balance of pay-
PHQWV WR WKHLQFUHDVH LQ WKHQHW FDSLWDO RXWÀRZ FDXVHG E\ WKHVDQFWLRQV ERLOV
down to a mirroring increase in the current account. It consists of three main
components: increased exports due to the stimulating effects of the weaker ruble;
lower imports (also due to the overall contraction of domestic demand); and im-
proved balance of investment income. The results presented in Table 11 showing
the relative contribution of these components (i.e., comparing scenarios with
and Prilepskiy, 2013) that imports play a considerably more important role in
adjusting to external shocks than exports (the so-called “internal” mechanism
RI DGMXVWPHQW SUHYDLOV RYHU WKH³H[WHUQDO´ PHFKDQLVP 7DEOH DOVR UHÀHFWV
the fact noted above that investment income improves over time under those
scenarios with the sanctions.
%\ DGMXVWPHQW LQ WKHSULPDU\ DQG VHFRQGDU\ LQFRPH EDODQFHV DOPRVW
completely neutralizes the sanctions’ impact on the real exchange rate (see
Components of the relative increase in the current account under scenarios with sanctions.
2015 2016 2017
+LJKRLOSULFHV±86'ELOOLRQ 38.6 31.5 33.2
Exports of goods and services 10.9 6.2 4.3
Imports of goods and services 60.8 39.5 32.1
%DODQFHRISULPDU\DQGVHFRQGDU\LQFRPH 28.3 54.3 63.6
Low oil prices (4–3), USD billion 43.8 31.7 34.4
Exports of goods and services 12.4 7.2 4.7
Imports of goods and services 47.3 39.4 36.5
%DODQFHRISULPDU\DQGVHFRQGDU\LQFRPH 40.3 53.3 58.9
Tab le 12
Variable/shock Sanctions Falling oil prices
Fixed capital investment –3.2 –5.0 –22.6 –24.1
Retail sales turnover –2.4 –3.7 –17.1 –18.2
GDP volume –1.5 –2.4 –7.1 –8.0
Consumer prices at the end of the period 3.1 4.1 7.1 8.1
Real ruble exchange rate against the USD –0.5 –0.3 26.9 –26.8
1RPLQDO¿VFDOUHYHQXHV 1.1 1.2 –13.1 –13.0
5HDO¿VFDOUHYHQXHV –1.2 –2.0 –18.9 –19.5
tions, i.e., that the medium-term effects of the sanction shock are weaker than
WKRVH RI WKHRLO SULFH VKRFN 2Q WKHRWKHU KDQG LW PHDQV WKDW WKHFRPSDUDWLYH
GDP gain from the dynamics of net exports in scenarios with the sanctions will
also be close to zero by 2017, and over the longer term, low oil prices are a sig-
QL¿FDQWO\PRUHLPSRUWDQW IDFWRU LQ LQFUHDVLQJ H[WHUQDO FRPSHWLWLYHQHVV DQG HQ-
couraging import substitution than the sanctions.
$V QRWHG DERYH WKHHIIHFW RI WKH¿QDQFLDO VDQFWLRQV RQ QHW FDSLWDO LQÀRZ
impact on economic development at low oil prices than at high oil prices (see
Table 12). Similarly, the sanctions aggravate the impact of falling oil prices
on the economy. This “synergy” emerges because similar reductions (in USD
larger as a percentage of the GDP components (investment, consumption, etc.),
which can be illustrated by a comparison between the bottom lines of Table 8
and Table 9.
%DVHGRQWKHUHVXOWVRI WKHTXDQWLWDWLYH HYDOXDWLRQRIWKHHIIHFWVRIWKHVDQF-
tions, we draw several conclusions.
x $VLGHIURP WKHLU GLUHFW HIIHFWV LH OLPLWHG IRUHLJQ ERUURZLQJRSSRUWXQLWLHV
for banks and companies in the fuel and energy and military-industrial sectors
WKDWDUHSXEOLFO\KHOGWKH¿QDQFLDOVDQFWLRQVhave considerable indirect effects
on the Russian economy in the form of decreasing foreign direct investment,
fewer borrowing opportunities for companies and banks not directly targeted
E\ WKHVDQFWLRQV DQG ORZHU FDSLWDO LQÀRZ LQWR WKHJRYHUQPHQW GHEW PDUNHW
These indirect effects roughly triple the direct effects of the sanctions.
x The consequences of the sanctions are to a large extent (by approximately 40%)
2014 and USD 160–170 billion over the period from 2014 through 2017.
x 7KHVDQFWLRQVDJDLQVW 5XVVLD DUHTXLWH SDLQIXO IRU real sector indicators: by
of pre-crisis GDP by 2017 (when oil prices are approximately USD 50 per
barrel), with a simultaneous reduction in investment and consumption.
x Nevertheless, the drop in oil prices had a much larger effect on the Russian
economy. Indeed, according to our estimates, the drop in prices leads to GDP
losses of 8.5 p.p. cumulatively from 2014 through 2017.
x 7KHGLIIHUHQFH EHWZHHQ WKHHIIHFWV RI WKHWZR VKRFNV RQ ¿VFDO UHYHQXHV LV
particularly large. $OWKRXJKWKHIDOO LQRLO SULFHV GHFUHDVHVWKHLU UHDOYDOXH
E\ ± E\ ± WKHVDQFWLRQV GHFUHDVH WKHP LQVLJQL¿FDQWO\ E\
1–2%). Moreover, at the beginning of the period, government revenues even
grow in real terms.
x 7KHFRPSDUDWLYHO\ OLPLWHG HIIHFW RI WKH¿QDQFLDO VDQFWLRQV FRPSDUHG ZLWK
the fall in oil prices LVODUJHO\H[SODLQHGE\WKHDFWLYHVHOIDGMXVWPHQWLQWKH¿UVW
the second case, there is mainly “passive” adjustment.
particular, when speaking of real sector indicators, i.e., GDP, investment and re-
tail sales, the effect of the sanctions has been increased by more than 50%.
x +RZHYHU ZH VKRXOG QRWH WKHconsiderable ability of the Russian economy to
2014 through 2017 will amount to 8% of 2013 GDP (with low oil prices), where-
as the accumulated GDP losses (the total difference in output between the S and
SS scenarios from 2014 through 2017) are estimated at 6 p.p. of 2013 GDP.
The authors are thankful to an anonymous reviewer for several helpful com-
%ODQN$ *XUYLFK( 8O\XNDHY$ ([FKDQJH UDWH DQG FRPSHWLWLYHQHVVRI 5XVVLD¶V
industries. Voprosy Ekonomiki, 6, 4–24 (In Russian).
%RXODQJHU 3 'XGX + )HUUDUL ( 3KLOLSSLGLV * The cost of import prohibition
for political reason: CGE analysis of the Russian ban on agri-food products. WK $QQXDO
conference on global economic analysis “Information for the policy maker: practical economic
Working Paper, 1364.
Voprosy Ekonomiki, 9, 4–39. (In Russian).
Gurvich, E. et al. (2014). Scenarios of development of the Russian economy in the conditions of
sanctions and falling oil prices. Report for the Civil Initiatives Committee. Moscow (In Russian).
,0) 5XVVLDQ )HGHUDWLRQ DUWLFOH ,9 FRQVXOWDWLRQ²3UHVV UHOHDVH DQG VWDIIUHSRUW
IMF Country Report, 15/211.
Koepke, R. (2013). 4XDQWLI\LQJ WKH)HG¶V LPSDFW RQ FDSLWDO ÀRZV WR (0V (IIF Research Note).
Washington, DC: The Institute of International Finance.
WKHJOREDO¿QDQFLDOF\FOHEHWDPHG"IMF Working Paper, 14/196.
Voprosy Ekonomiki, 12, 54–66 (In Russian).
Rautava, J. (2014). Crimean crisis will cost Russia too. BOFIT Policy Brief, 1.
6LQ\DNRY$ 5RLWPDQ $ 6HOH]Q\RY 6 Dynamics of Russia’s potential GDP after
the oil shock: The role of large change in relative prices and structural rigidities %DQN RI
6KLURY$<DQWRYVNL\$ 3RWDSHQNR 9 (VWLPDWLRQ RI SRWHQWLDO LPSDFWRIVDQFWLRQV
on the economic development of Russia and the EU. Problemy Prognozirovaniya, 4, 3–16
8O\XNDHY$0DX9 )URPHFRQRPLFFULVLV WR HFRQRPLF JURZWK RU KRZ WRSUHYHQW
the crisis from turning into stagnation. Voprosy Ekonomiki, 4, 5–19 (In Russian).
RIWKH8NUDLQLDQFRQÀLFW. Note from the Observatoire franco-russe, 9.