While Russia’s economy appears resilient after two years of conflict with Ukraine, the country is witnessing a surge in corporate bankruptcies, indicating underlying challenges in its business landscape.
Escalating Bankruptcies
According to Russian business daily Kommersant, the number of bankruptcies in Russia surged in the first two months of 2024. In January, 571 companies declared bankruptcy, marking a 57% increase from the previous year. Similarly, February saw 771 bankruptcies, representing a 60% rise compared to the same period in 2023.
Post-Moratorium Impact
Despite imposing two moratoriums on bankruptcy in recent years — during the COVID-19 pandemic in 2020 and after Western sanctions in 2022 — the expiration of these measures has led to a resurgence in bankruptcies. Ilya Torosov, Russia’s first deputy economy minister, attributed this trend to a return to pre-pandemic levels.
Ground Realities vs. Official Statistics
The increase in bankruptcies reflects the challenges faced by businesses on the ground, contrasting with the optimistic GDP growth of 3.6% reported by the Kremlin for 2023. While government spending has bolstered Russia’s wartime economy, soaring interest rates, reaching up to 16%, are straining businesses.
Pressure on Private Sector
Apart from sectors directly impacted by the war, such as arms production, Russia’s private sector is grappling with international trade issues and macroeconomic instabilities. Companies are struggling with refinancing amidst tightening monetary policies and increasing trade barriers.
Future Uncertainty
As Western trade restrictions tighten, Putin’s regime faces pressure to deliver on promises of lifestyle upgrades for Russians ahead of the presidential election. Proposed changes to the tax system targeting high-income individuals and businesses may exacerbate the strain on private companies.
Conclusion
As Russia heads into its presidential election, scheduled from March 15 to March 17, economic challenges persist despite official narratives of resilience. The surge in bankruptcies underscores the need for sustained efforts to address underlying economic vulnerabilities and support the private sector amid geopolitical tensions and domestic pressures.
Jade Simon
