Why does IMF predict strong Russian growth despite sanctions? | Inside Story

the international monetary fund predicts strong growth for Russia's economy this year that's despite sanctions imposed for the invasion of Ukraine European nations Trail well behind Russia in the IMF forecast so what's behind these figures do sanctions actually work this is Inside [Music] Story hello welcome to the program I'm Adrien finegan Russia's invasion of Ukraine almost two years ago has been met with the harshest regime of sanctions ever imposed on a country so Russia coming third behind India and China in the global growth forecast from the international monetary fund may surprise many that's also after conscription into the army for large numbers of Russian workers and the hundreds of thousands who fled the country since the war be began despite all that what's behind the optimistic forecast for Russia's economy do International sanctions actually work not just in Russia but elsewhere We'll be asking our guests this and lots more in a few moments but first a report from Kaa Lopez hodan it looks like 2024 will be a good year for Russia's economy the international monetary fund predicts a 2.6% growth in Russia GDP that's despite widespread sanctions aimed at crippling the Kremlin for invading Ukraine but Russia's so-called War economy and military spending are driving much of the growth raising questions on whether sanctions have become irrelevant we are resolved to continue imposing massive costs on Russia costs that will further isolate Russia from the International Financial system and our economies and now two years into the War President Vladimir Putin has managed to get around some Western sanctions by using allies to obtain technology such as computer chips needed for weapons to fight in Ukraine using so-called Shadow ships is another way Russia is getting around EU sanctions by passing the $60 per barrel price cap on oil exports by hiding the vessel's port of origin ownership and Route the move allows shipments to reach major customers such as China and India keeping Russia's vital oil trade and income flowing in contrast to Russia's expected growth the IMF has downgraded Germany Europe's strongest economy High Energy prices caused in part by sanctions on Russian oil and gas Imports are fueling the fall German leaders are defiant despite the risk of recession Germany has an international responsibility we back Ukraine as the world's second largest financial supporter our contribution remains unchanged at above 0.6% of our economic output it's unclear if Russia can maintain predicted growth in the long-term without its War economy but the IMF figures are raising questions on whether sanctions designed to hurt Moscow have backfired Kia Lopez oan Al jazer for insight story well Russia is one of several countries under International sanctions but it tops the total figures cated by data Specialists castellum a for December show Russia faces almost 19,000 sanctions before the invasion of Ukraine around 2700 were in force trailing well behind Russia is Iran with almost 5,000 Syria faces just over 2,800 sanctions North Korea is next with nearly 2,200 and then comes Russia's neighbor bellarus with almost 1,500 next are Myanmar and then Venezuela sanctions against Russia have been imposed by countries including the US the EU the UK Australia Canada and Japan all right let's bring in our guests for today's discussion from aana in Kazakhstan we're joined by Chris Weaver who is the chief executive of macro advisory that's a strategic business consultancy focused on Russia and Eurasia from the Norwegian capital O we're joined by arand bfet who's a sanctions expert who founded the country risk Analysis company co-risk he also helped to write a recent report that investigated how Russian sanctions are being ignored and from Washington DC anatol Leven is the director of the Eurasia program at the Quincy Institute for responsible statecraft and gentlemen welcome to you all let's start with you then Chris what do you make of these optimistic uh uh growth forecast figures for Russia well they look optimistic but in actual fact uh what what really those numbers show is that the economy is stabilized uh it is largely being driven but with a combination of uh military industrial complex spending uh which is having of course a big impact on the economy and also the fact that incomes have been rising so strongly last year and again expected to this year uh almost a double digit uh reeling growth which is driving consumption so it's those two factors that are supporting this you know optimistic uh forecast uh we expect uh between two to 2.5% growth so not too dissimilar to the IMF uh and we expect that the government will come out with very strong numbers for 2023 for last year the economy Ministry for Minister just recently said that he thinks the GDP for 2023 could actually have been 3.5 or even a little bit better uh but but it is very much down to the military-industrial complex spending and the recovery and consumption uh it is not a reflection of kind of a broad economic recovery it's not an indication of an economy that's you know that that's uh seeing sustained growth across multiple sectors it's a very specific reason but it is supportable for several years provided the oil tax income uh remains roughly where it is today alland European commission Vice President Joseph borell continues to insist uh that that sanctions against Russia are working but as we said at the beginning of the program it's it's nearly two years now since the Ukraine War began and the sanctions were were introduced shortly after um are they working is is Joseph Boral right well Adrian they are working uh as we all know from historical ly uh sanctions do not work like overnight they take some time to start making their way uh but what we see is that Financial sanctions of Russia are really working Russia has big problems getting hold of hard currency they have trading problems they have inflation in Imports and actually uh what we've seen in our research is that and this has not been uh very much much noticed but actually Russia's Imports of the so-called critical list Goods or the most the 51 most of War critical Goods has declined by 60% since December 2022 so 20 December 22 was kind of the peak of uh Russia's Imports both Total Imports and critical Imports have been more or less decimated since uh December one year ago what we see in the long term I think all economists agree that the long-term picture for uh for Russia is not Rosy they have basically a long-term 0% growth GDP is still lower than it was 10 years ago there is a kind of decline in population decline in skills with migration and everything but actually uh even in the short term we're seeing now uh what the IMF is actually kind of documenting is not economic growth is spending growth so basically what Russia is doing they are taking money for the pensions fund they probably half their pensions fund and they're transferring that to public spending on security and this is not has nothing to do with real organic economic growth this is not sustainable this is not something that will drive their economy into 2020 25 26 Etc this is a very shortterm uh more or less budgetary uh phenomenon and it has nothing to do with uh economic growth an ATL the sanctions were intended to undermine Russia's ability to to fund its war in Ukraine are they doing that no obviously not U you know Russian military production has increased hugely they are uh out competing the West when it comes to the production of artillery shells for example which is critical but I think it's also worth noting that you know when it comes to regime change or even changing critical regime policies uh sanctions have almost never worked uh you read a long list of them um going all the way back to Cuba now for more than 60 years uh and they have not succeeded uh the difference is that in those cases they did do great damage to the economies concerned of Iran Venezuela and so on whereas in the case of Russia they haven't done that and I think there there are other things to be noted here uh the first is of course that the economy over the past generation the world economy has become very different uh China is now an economic super as long as it is willing to go on buying Russian energy and trading with Russia and supplying Russia with various you know critical products and as long as India also a hugely growing economy is willing to do that the West's ability uh to strangle the Russian economy is colossally reduced unless of course it were actually to impose a naval blockade on Russia but that would be an act of war the other thing I think to not is that uh what's happening in Russia has been called military keynesianism it recalls in certain respects the Boom in America which ended the Great Depression at the end of the 1930s as a result of colossally increased military spending uh and that is a viable way of boosting the industrial economy if of course you've got the resources from the sale of oil and gas to do that the long-term question I think and this is something that Russian analysts are writing about a great deal now is whether this can be turned into a sustainable State program uh of Industrial Development in other fields uh when the war ends if it ever does now of course for that we we we don't know whether this will be possible uh but since so many Western pred itions have proved false predictions or shall we say hopes I think it would be a mistake simply to to assume a priority that Russia cannot do that Chris um what do you make of what anat was saying that do you agree that the sanctions almost uh never work and and and if they they don't work what should the West have done to hit Russia's capability uh to fund its uh military industrial complex and its war against Ukraine yeah actually can I just go back to uh one step uh I'm just to to to uh add to a comment was made earlier Russia is not funding the military uh spending the the budget uh out of savings uh it's it's it's running the budget deficit only about 1% last year less than 1% this year uh the critical element for the budget is the level of oil gas and commodity exports and they're holding up quite well so it's not the case that you know Russia is burning through its its stockpile of money and is going to end up in a in a a difficult uh situation within the next couple of years the the the financial reserves are more or less staying intact and Russia is actually running down its debt so its financial position right now which is critically dependent on export volumes for sure um is remaining in quite un comfortable position but in in in in answering your question about sanctions almost never work well they almost never work in to to deliver on what was the declared intention in this case the declared intention was to force Russia into a difficult economic situation so that it would force to Kremlin into uh rethinking its actions in Ukraine and stopping its actions in Ukraine and clearly that that hasn't happened um the reason it hasn't happened is because Russia is such an important uh exporter or or supplier of of hydrocarbons and other materials which are in high demand in places like China and India and other Asian markets uh and there's no sign of that let letting up uh Russia it is offering a reduced discount now compared to what it was offering or had to offer in the first half of last year now the discounts are much smaller and it has built up this Shadow Fleet and other ways of getting the the products to the Asian customers and to and to be paid for it so to that extent yet for sure you Russia is not in the comfortable position of being able to diversify the economy and to grow and to handle all of the demographic issues that it was talking about before this conflict but it is in a comfortable position in that it can pay its bills and fund uh the budget kind of requirements that it's now facing and then one final point is in terms of the future uh you know clearly the situation remains that it is today Russia will slip more and more into stagnation the economy will become even more dependent on military-industrial complex the narrative in Moscow of course is that that's not going to happen and they're looking at cooperation with this expanded bricks plus format which of course was added to with other countries uh from January this year and where the intention of of Russia and and China is to bring even more countries into it in the next couple of years and to use that format as an alternative if you like to what was a previous dependency and engagement with Western Nations it's far too early to say that that will work uh or how long it will take to work but there is a way forward that at least has been discussed which has got some options but meantime the critical factor for Russia absolutely is what are the level of budget receipts from oil exports that's critical irland are European and US companies I mean indeed I mean entire nations perhaps undermining the sanctions regime by circumventing them and if so what can be done to better enforce a sanctions regime uh once it's put into place so Adrian what we found in our research is yes uh European and and Western also us companies are circumventing sanction of Commodities so sanctions of export of goods to Russia those goods will usually kind of find a way via third countries via turkey via Kazakhstan or other countries and they will basically find a way to Russia but uh what is working here are actually the financial sections so what we see is that Russia just amid a a war an intensive War drastically reduce their Imports of War critical Goods of the critical East Goods um they have been more than half since uh one year ago and we think the reason for that is because Russia is having issues with hot currency they're earning more or less they have a lower exports gas prices has been decimated to only a fifth of what it was a year ago uh and we see this kind of decline in Russia's ability to import so regardless of uh to which degree commodity sanctions work we think that we have to look at the commodity sanctions in conjunction with the financial sanctions and we see Financial sanctions the dollar sanction the Euro sanction are probably working quite well to uh reduce uh Russia's abilities so I kind of I I think we all agree that kind of Russia's long-term economic uh development has been very Bleak very uh bad but even in the short term after this suspending spree that we see up until the election in in uh in a month uh we will probably see much clearer the uh erosion of Russian productive capacity below that kind of budgetary artificially uh surface that we see uh unfolding now okay um I see Chris um shaking his head anat I'll come back to you in just a second let me just give Chris a a moment to come in yeah I mean I've I've read this in a few places obviously the expectations that Russia is deliberately kind of ramming the economy with high levels of spending uh all of which is going to come to an end after the election uh and I just don't see that uh you know the one of the reasons why the economy has performed quite very well like relatively well last year continues is because of the effectiveness of the state institutions uh of the management of the economy and they've been reasonably transparent uh and we can cross reference data with with importers such as China and India Etc so we we just don't see that there is a cliff you know in terms of spending uh Russia for example even last year made 140 billion of Trade Surplus and almost 80 billion of current account Surplus and and the at the current oil price there's no reason why that won't be repeated through this year uh so we do not see a reduction in spending we'd see it more even uh like uh through the year unless the oil price collapses okay ANL if sanctions almost never work as you said in in your last answer why why are they are they still used what impact do they have upon the economies of countries that impose them I'm thinking specifically here of Germany yes I that is the critical question I mean this started with the United States and it has progressively become a kind of declarative policy especially on the part of US Congress it's a way that the Congress has signaled its displeasure or anger uh with a range of countries around the world either for humanitarian reasons or because they are uh against America or a combination of both uh so it's uh and of course it's also the alternative to war if for whatever reason you feel that you cannot as you would have in the past uh invaded Venezuela and or Cuba and replace the governments there then you impose sanctions on them same thing with Iran same thing with Russia if you're not prepared to fight you try to do it by economic means uh now if this as I've said was the equivalent of the British blockade of Germany in the first or second world wars which cut off all German Maritime trade then it would work uh but of course we're not prepared to go there not just because it would be an act of war against Russia and not just because it would infuriate the but it would also infuriate critical Western Partners like India who are so dependent on on Western Oil so this is a a policy which has become reflexive U automatic I mean the Congress often appears to be on autopilot over this it's not necessarily A a policy that has been seriously and systematically thought out uh so uh yeah I mean I I I think that uh this is something to be reconsidered and of course on Germany you're absolutely right it's you know it's like the old story you you don't have to run faster than the lion you just have to run faster than me and Russia is doing so much better than Germany and it is a serious question now with so much worried talk in Germany of de-industrialization the collapse of the German industrial economy whether in fact politically Germany can sustain its existing cause including that of sanctions against Russia a few minutes left I want to get a couple more questions in uh Chris to you first to what extent uh is it the Ordinary People of Russia who are bearing the brunt of of the West's sanctions against the country uh and as far as uh their political support for for President Putin has has it strengthened him um well look there there's no obvious impact on on people right now I mean I'm in and out of Russia a lot I see this stores are full uh the mechanisms to for for people to buy goods online from say Fashion Outlets that have left Russia are all fully available um there there's no and and you know look at the streets of Moscow it's not only that they're full of Chinese cars but there are brand new uh Asian and European cars coming into parel import so so there's as of now there is no kind of uh obvious negative impact or any major impact on on Russians other than those who want to travel it is clearly a lot more expensive uh for Russians to travel outside Russia and it's more difficult to go to go to most places except down to the Middle East but for the majority of Russians I would say no they haven't really noticed uh any any any impact on on their lifestyle other than perhaps there's more Goods with made in China label on them than maybe made in in Germany that was was the case in terms of support for for the president well you know Russians historically support this the state uh when especially when there's time of of trouble as they say and you know the narrative in Russian media is that Russia is under attack by NATO by the west and that Ukraine is simply being used as the the pawn in the middle uh and that Russia is fighting against NATO so people support the state uh and are quite nationalistic in in in that sense um to that extent President Putin as the president gets the support by by default but I don't see at this stage any reason to assume that there would be any public protests uh although it is worth mentioning that there is concern about a possible next round of mobilization uh we are beginning to see some push back against that so the criminal will need to be careful not to make a misstep on mobilization as it did in September of 2022 but apart from that I would have to say the situation in nor in Russia Today is is actually quite stable Arland we've talked a lot on the program about commodity and financial sanctions designed to bring about uh political change um is there any evidence to suggest that that sanctions also work as a tool for bringing about a positive change as far as human rights are concerned well it did certainly in South Africa uh if you go a few decades back uh sanctions can work uh very much we saw for example Iraq uh they probably had too much effect and were kind of tuned down uh but uh and all our research uh shows that the sanctions of Russia are really working quite a lot first as I touched upon uh the dollar and Euro sanctions Financial sanctions reduce their ability to import and to trade C rise the cost of war the cost of import cost of technology and all of that uh but I disagree with uh chis uh as to the burden of on on ordinary Russians citizens they are paying a very high price for the war first of all of course uh the conscription and the war itself but if you go outside of Moscow you would see people dying from cold because of L lack of heating and electricity you'll see people's interest rates on loans have uh really increased a lot inflation has increased a lot and even Petrol in a country like uh Russia uh prices has increased a lot there is a lot of disturbance of the market uh mechanism and actually uh I think when the public spending spree is over after the election when social and milit social spending is kind of relaxed again you will see uh economic problems coming to Forefront also for or we're almost out of time I just Chris is shaking his head there Chris look I've got about 30 seconds I wanted to get anatalia and I'm sorry anat I might not get back to you but but but Chris quickly three quick points first of all we do not see uh spending deteriorating after the election we I do not see any basis for that whatsoever secondly uh it 85% of Russia's trade is now conducted in currencies of bricks countries which includes now the UA Durham uh as as well as the Chinese wand so yes it moved substantially away from the dollar and Euro and the third thing is I was actually out in the regions last week I do not see people dying through anything it's normal quickly because the news doesn't wait for anyone and and that's coming up next anat just just briefly yes I mean actually there's been a great redistribution of money to the Russian provinces uh they're doing uh much better the industrial zones uh and uh no I mean the the war will continue and spending on the industrial economy will continue after the elections this is not a a a political boost for the economy it is a war boost all right gentlemen there we must end it many thanks indeed uh to you all all for taking part in the program today Chris Weaver Aran bford and anatol L as always thank you for watching you can see the program again at any time by going to the website at al.com uh for further discussion on this topic join us at our Facebook page you'll find that at facebook.com/ AJ insidestory and you can join the conversation on X our handle there at AJ insid story from me Adrien finigan and the team here in Doha we'll see you again bye for now

Channel: Al Jazeera English

Views: 337,989

Keywords: IMF, IMF 2024 global growth outlook, Inflation, International Monetary Fund, Russia, Russia latest news, Russia sanctions, Russian economy, Russian economy growth, Ukraine war, Vladimir putin, business economy, energy prices, global economy, international trade, world economy, al jazeera live, al jazeera english, al jazeera, Al Jazeera English, Al Jazeera, aljazeera English, aljazeera live, aljazeera live news, aljazeera latest, al jazeera video, Aljazeera, aljazeera news

Id: hDLtml-XcjI

Length: 27min 35sec (1655 seconds)

Published: Wed Jan 31 2024