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The Mystery of Russian Resilience

By Natalka Bowley

Russia defies convention. Its political reach, whether in influencing its people, its neighbours, or the policies of nations halfway across the world is massive, but its economy is smaller than Canada’s. Its economic workings are similarly confounding. It has a massive reliance on commodities, particularly oil, has an economic climate that is hostile to local businesses, and is under pressure by foreign sanctions, but it is surprisingly resilient in the face of crises in its current account and its national debt. Russia has a persistent trade surplus as well as a low national debt. This is because of a combination of fiscal discipline and government heavy-handedness that have allowed the Kremlin to keep a large current account surplus but at a cost to its own economy in the long run. These policies include careful budgeting around the oil price and an independent central bank but also government asset seizure and pressuring of neighbours to buy Russian products. These mixed approaches have saved the Russian economy from current account crises, but have damaged companies’ ability to function.

Russia’s fiscal discipline is to be admired. Many oil-rich nations have fallen prey to the commodity curse, experiencing rapid economic growth when oil prices are high but also precipitous falls when they crash. Russia has pegged the price of oil to a conservative 40 dollars a barrel in its economic projection and any excess tax revenue drawn from a higher oil price. This is a major factor in Russia’s enviable 33% public debt to GDP ratio. This rule also keeps the government from going on a spending spree, in effect capping inflation, which has routinely met the targeted 4% thanks to the Kremlin-independent central bank. The bank has been able to make unpopular political decisions, such as dropping the rouble in 2014, which is rare in Putin’s Russia. A cheap ruble, and a stable economy have strengthened Russian exports. These policies, paired with the accidental economic quarantine of American sanctions, have lead to good bond yields, low debt, a stable currency and inflation, and a large current account surplus.

The government strays from its fiscal conservatism when it comes to respecting the corporations that might throw unpredictability into the economy. Companies, famously including the oil giant Yukos, have a tendency to be seized by the state when opportune. In other cases, companies have had their share prices destroyed when acting against government interests. Sistema, a large conglomerate, found its stock plummeting overnight when it competed with state-owned Rosneft. This seizure is motivated by governmental greed, which some argue is the only factor, but also by a desire to keep the economy under control and to prevent economic reliance on foreign power, which often takes the shape of current account deficits.

This means that the Russian economy stagnates, as it is not free and competitive. Investment is stymied as stockholders fear the seizure of their assets and those that are brave enough to buy stocks buy those in establishment companies that are integral enough to the regular function of the economy that the Kremlin does not dare seize them, such as Sberbank, the largest bank, and Yandex, the search engine. The result is that capital becomes fixed in these giants and not in newcomers that might shake up the economy by bringing in jobs and promoting growth.

The alternative is not much better. A current account crisis is, as its name would suggest, a massive crisis. Running a dangerous current account deficit is not just being a net borrower and importer of goods and other capital. Current account crises are typically caused by “hot money”, when the money borrowed within a country has not been invested in long-term investments but rather in short term gambles from which the money can be quickly withdrawn. This often sparks financial crises and devaluations beyond what the economy can safely absorb as businesses who had borrowed in foreign currency are unable to pay their debts. Argentina and Turkey suffered such crises in 2018.

Russia feels pressed to avoid such a crisis, particularly as its economy stands under the pressure of US sanctions and the costs of the war with Ukraine on its western border. But its more mainstream tactics along with its natural resources are likely adequate in avoiding disaster. The rouble’s ability to depreciate is underappreciated as slow depreciation can allow an economy to absorb macroeconomic shocks and to make Russian exports cheaper and more desirable during weak periods. The presence of vast natural resources can also allow Russia to maintain a deficit as it could fund it by selling those resources to foreigners in a manner similar to Australia.

The crisis of competition is an existential threat to the Russian economy and is much more damaging than even a balance of payments crisis. In addition to causing problems for investors, as discussed above, Russia’s corruption leaves it unable to develop its human resources, which are necessary to compete with other nations outside of the natural resource sector. The Moscow Times reports that 71% of entrepreneurs consider the conditions for doing business in Russia to be unfavorable and one in two believe the situation will only get worse during the next five years because of the lack of free institutions and civil liberties. Those same deficiencies leave broader Russian society with a lack of social cohesion. According to the World Economic Report, capital flight in terms of the number of professionals seeking to leave Russia often exceeds 50% in some professions. This hurts the economy’s ability to grow human capital. . A current account crisis can cripple an economy for years, but the deep flaws in the Russian economy and civil society are a threat that can destroy the country’s future.

Russia’s zealous protection of its current account surplus extends to manipulation of its neighbours. Many neighbours are forced to purchase necessities, such as oil and electricity, from Russia. Gazprom, the state gas provider, can set above market prices and disable an entire country if it refuses to pay or for inferred political reasons. Ukraine suffered gas shutoffs from 2005-2010 and then again in 2014 and 2015 in light of the Euromaidan protests. Ukraine eventually signed a deal with Slovakia and the EU to reopen closed and aging pipelines to secure energy independence, but other nations, notably Belarus, are still extremely reliant. The FSU forms a convenient captive market for Russian commodity exports.

As a regional megalith, Russia also exerts an informal power over its neighbours. Russia’s economic crash a result of tanking oil prices in mid-2014 along with the subsequent collapse of the rouble by 60% of its value against the US dollar offers a perfect case study. FSU nations with no major stake of their own in the oil market, such as Tajikistan, Kyrgyzstan, Moldova, Georgia, and Belarus, also saw their economies collapse. The main exports of many of these nations are their citizens, who work in vast numbers in Russia. Reuters reports that remittances form 45% of Tajikistan’s GDP. For any other export, Russia remains a primary market. Their leaders, often strongmen remaining from Soviet times such as Belarus’s Alexander Lukashenko and Tajikistan’s Imomali Rakhmon, report to Vladimir Putin for political and crucially trade and economic decision. Whether purposely or simply as a result of its size, Russia protects its current account through foreign meddling in addition to domestic tampering.

Russia’s elite want their country to grow but they refuse to allow it to escape the confines that they themselves have placed on it. They can keep the economy out of crisis with intelligent and disciplines currency and budgeting policy. They can even create an artificial market of dependent states for top exports. When it comes to the growth of human capital, the attraction of domestic or foreign investment, or the success of companies run by those out of the state’s control, Russia fails miserably. The state manipulates the economy to protect the current account, seizing assets when it wants to. As a result, the nation is secure against crisis, but growth and entrepreneurship stagnates. Neighboring states feel the pain as well. Russia, despite its resilience and discipline, needs to change, with all the risk of crisis for the nation and destruction for its leadership, if it wishes to survive.

Works Cited

World Economic Review, “GDP Ranked by Country”, updated 2019.

Focus Economics, “The Russian Economy Explained”, updated November 2016.

Buttonwood Columnist, “Russia is heaven for bondholders and hell for stockpicker”, June 29th, 2019.

Russia Briefing, “Russian 2018 Public Debt to GDP Ratio among World’s Lowest”, Dezan Shira and Associates, May 8, 2018.

Leonid Ragozin, “When Russian Officials ‘Nightmare’ Your Business, You Can Lose Everything—Even Your Life”, Bloomberg, January 28, 2018.

Tejvan Pettinger, “Problems of a Current Account Deficit”,, May 27th, 2018. Accessed at

Alexandra Prokopenko, “Why the Russian Government Can’t Attain Economic Growth”, Moscow Times, August 1 2019.

“Scenarios for the Russian Federation”, World Economic Forum, 2013,

Randal Newnham, “Oil, carrots, and sticks: Russia’s energy resources as a foreign policy tool”, Penn State University, 11 September 2010,

Paul Kirby, “Russia's gas fight with Ukraine”, BBC News, 31 October 2014,

Olzhas Auyezov, Andrei Makhovsky. “Russia gets a cold; ex-Soviet neighbours catch pneumonia”, Reuters, 15 February 2016.



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