AVN 64.74 Decreased By ▼ -0.26 (-0.4%)
BAFL 31.23 Increased By ▲ 0.08 (0.26%)
BOP 4.82 Increased By ▲ 0.11 (2.34%)
CNERGY 3.86 Decreased By ▼ -0.02 (-0.52%)
DFML 14.11 Increased By ▲ 0.41 (2.99%)
DGKC 41.69 Increased By ▲ 0.42 (1.02%)
EPCL 46.36 Decreased By ▼ -0.33 (-0.71%)
FCCL 11.41 Decreased By ▼ -0.01 (-0.09%)
FFL 5.06 Increased By ▲ 0.02 (0.4%)
FLYNG 5.78 Decreased By ▼ -0.04 (-0.69%)
GGL 9.92 Decreased By ▼ -0.03 (-0.3%)
HUBC 64.23 Increased By ▲ 0.13 (0.2%)
HUMNL 5.61 Decreased By ▼ -0.04 (-0.71%)
KAPCO 27.84 Increased By ▲ 0.04 (0.14%)
KEL 2.15 Increased By ▲ 0.02 (0.94%)
LOTCHEM 24.52 Increased By ▲ 0.22 (0.91%)
MLCF 21.75 Increased By ▲ 0.35 (1.64%)
NETSOL 84.19 Decreased By ▼ -0.01 (-0.01%)
OGDC 87.30 Decreased By ▼ -0.64 (-0.73%)
PAEL 10.95 Increased By ▲ 0.05 (0.46%)
PIBTL 4.24 Increased By ▲ 0.06 (1.44%)
PPL 76.63 Decreased By ▼ -1.07 (-1.38%)
PRL 13.69 Increased By ▲ 0.07 (0.51%)
SILK 0.90 Increased By ▲ 0.01 (1.12%)
SNGP 41.52 Decreased By ▼ -0.41 (-0.98%)
TELE 5.95 Increased By ▲ 0.08 (1.36%)
TPLP 15.77 Decreased By ▼ -0.01 (-0.06%)
TRG 111.25 Decreased By ▼ -1.05 (-0.93%)
UNITY 13.92 Decreased By ▼ -0.03 (-0.22%)
WTL 1.14 Increased By ▲ 0.01 (0.88%)
BR100 4,046 Decreased By -1.8 (-0.05%)
BR30 14,434 Decreased By -33.1 (-0.23%)
KSE100 40,620 Decreased By -53.1 (-0.13%)
KSE30 15,170 Decreased By -20 (-0.13%)
Follow us

Russia’s economy will likely suffer significantly from the raft of sanctions imposed following Moscow’s invasion of Ukraine, despite attempts to reduce its financial interdependence with Western countries in recent years.

And the impact could spread well beyond Russia’s borders.

The ruble tumbled to a record low, the Moscow Stock Exchange stayed shut to stave off an expected sell-off and the interest rate was drastically hiked on a turbulent Monday for Russia’s economy.

One of the latest sanctions, the partial freezing of the Russian central bank’s foreign exchange reserves held abroad, will make it difficult to prop up the beleaguered currency.

“The size of your reserves makes your credibility to defend an exchange rate,” said Niclas Poitiers, a researcher at the Brussels-based economic think-tank Bruegel.

“People lost their trust in the financial system,” he added, explaining the collapse of Russia’s currency and the rush by people to withdraw money from banks on Monday.

The Kremlin responded by banning foreign cash transfers abroad and forcing exporters to convert 80 percent of their income into rubles. The economic sanctions also include freezing the assets of banks and people, excluding certain Russian banks from the interbank messaging system SWIFT and export controls.

Olivier Dorgans, a lawyer with Ashurst specialising in sanctions, said measures such as freezing the assets of Kremlin-linked businesspeople would have a short-term impact.

But restrictions on electronic components exports would have much longer-lasting consequences, he added.

The fallout could be huge. The IMF, which before the war in Ukraine predicted Russia’s economy would grow by 2.8 percent this year, on Thursday warned of a “significant economic risk” for the region.

Analysts at Capital Economics said sanctions could knock off one or two percent from Russia’s annual economic output — even before the freezing of Russian central bank assets and exclusions from SWIFT.

Capital Economics also warned that inflation could soar by as much as three percentage points, slashing ordinary Russians’ purchasing power. Inflation in Russia reached 8.7 percent in January.

The Russian central bank’s decision to hike interest rates to 20 percent on Monday risks slowing the country’s economic growth even further.

Western countries still have plenty of cards to play. A blanket ban on Russian banks from SWIFT is possible but unlikely.

“If we push it too far, it’s bad for us,” EU officials told AFP. “But it’s also bad for the future, because then we damage SWIFT as an infrastructure overall.

“The Russians and the Chinese are already building up their own SWIFT,” they added, highlighting the risk of pushing Moscow further towards an alliance with Beijing.

Several banks could escape the exclusion to maintain energy supplies to Europe, with several economies — including the continent’s largest, Germany — heavily dependent on Russian oil and gas, a large part of the country’s income.

But “no sanction is worth anything if we don’t sanction energy,” said economist and EU lawmaker Luis Garicano.

A wide-ranging freezing of oligarchs’ foreign assets would be another weapon at the West’s disposal, according to Gabriel Zucman, an economics professor at the University of California, Berkeley.

Zucman said half of fortune of Russia’s wealthiest elite — the top 0.01 percent — was held abroad.

Economist Thomas Piketty has called for a tax of 10 percent or 20 percent on such large fortunes.

The West’s strategy so far has been to focus their effects on the Russian economy and minimise the impact on the rest of the world.

But the conflict has caused commodities prices to skyrocket, weighing down on international supply chains already severely disrupted by high demand during the post-pandemic economic recovery.

Industries have suffered from soaring electricity costs, while airlines have faced more expensive fuel bills.

The IMF in January revised downward its global growth forecast for 2022 to 4.4 percent, in particular due to rising inflation, which has reached 3.9 percent in developed countries.

The response of central banks to runaway inflation was already a hot topic before the Ukraine conflict broke out as they prepared to tighten monetary policy.

Now there is a risk of stifling the recovery in the wake of Russia’s invasion of Ukraine.

“Central banks’ challenges have become more complex as inflationary pressures have risen even as the outlook for growth has softened,” Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, said Monday.-AFP

Comments

Comments are closed.

What impact will sanctions have on Russia and the world?

'Higher than expectations': Pakistan's headline inflation clocks in at 27.6% in January

Rupee sustains losses, settles at 268.83 against US dollar

Fawad Chaudhry released from Adiala jail

Imran says governor KP's letter to ECP regarding delay in polls raises 'suspicions’

Cannot rule out internal assistance for Peshawar bombing: police

Peshawar attack: ‘Who brought the terrorists back?’, asks PM Shehbaz

Hyundai-Nishat jacks up car prices by up to Rs500,000 in Pakistan

Maryam Nawaz says PML-N will clean sweep upcoming elections

PSX sees range-bound session, KSE-100 falls 0.13%

US, India partnership targets arms and AI to compete with China