Russia's economy appears resilient, but companies are going bankrupt by the hundreds
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- Corporate bankruptcies in Russia rose sharply in the first two months of 2024.
- Russia has imposed two moratoriums on bankruptcy in recent years, both of which have now expired.
- High interest rates and macroeconomic instabilities are adding pressure on the private sector.
Russia's economy appears resilient after two years of war with Ukraine, but a rising number of companies in the country are in trouble.
The number of companies in Russia that have gone bankrupt has soared in the first two months of 2024, Russian business daily Kommersant reported on Thursday.
In January, 571 companies in Russia declared bankruptcy — a rise of 57% from 364 a year ago, Kommersant reported, citing data from the federal register for bankruptcy.
In February, 771 companies declared bankruptcy — 60% higher than the 478 that did so a year ago.
Russia has imposed two moratoriums on bankruptcy in recent years. The first came during the COVID-19 pandemic that started in 2020; the second came after the West imposed sanctions on Russia over its invasion of Ukraine in 2022. The moratoriums expired in 2021 and late 2022, respectively.
Ilya Torosov, Russia's first deputy economy minister, told Kommersant that this is merely a return to pre-pandemic levels.
On-the-ground difficulties in Russia
The uptick in corporate bankruptcies highlights the difficulties faced on the ground in Russia. It also stands in contrast to the rosy official statistics the Kremlin releases, which show that Russia's GDP grew 3.6% in 2023.
Thanks to government spending, Russia's wartime economy is resilient — but high interest rates are biting. The Bank of Russia has hiked interest rates up to 16% to cool the economy and tame inflation.
"Companies are experiencing problems with refinancing as the effects of monetary tightening are starting to kick in," Bartosz Sawicki, a market analyst at Conotoxia, a Polish fintech firm, told Business Insider.
Apart from war-related sectors such as arms production, the Russian economy looks "far from rosy," Sawicki said.
"Although Russian companies are doing their utmost to dodge sanctions, international trade has become a significant issue for plenty of them," Sawicki wrote in an email.
"The private sector also feels the pressure of macroeconomic instabilities, which deepen as the economy is on the verge of overheating," he added.
It could get worse.
Russian President Vladimir Putin's regime is coming under tightening Western trade restrictions, including secondary sanctions against companies doing business with the country.
Putin has also pledged to give Russians billions of dollars in lifestyle upgrades weeks before they head to the ballot for the country's presidential election later this month.
While it's unclear where the extra budget for Putin's promises will come from, the Russian leader has proposed changes to the tax system that are designed to result in more taxes from high-income individuals and businesses — which could put even more pressure on private companies.
Russia's presidential election is set to take place over three days, from March 15 to March 17. Putin is expected to win the election against three opponents.
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