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1 1 (May 3, 2022)

handle is hein.crs/govefrj0001 and id is 1 raw text is: $ Congrsinal Reerhevc 6 May 3, 2022 Russia's War on Ukraine: The Economic Impact of Sanctions Impact on Russia's Economy Across a range of metrics, Russia's economy is worse off than it was before Russia expanded its invasion of Ukraine in February 2022. The International Monetary Fund (IMF) projects that in 2022 Russia's economy will contract by 8.5%, inflation will reach 24%, and unemployment will double to 9.6% (Figure 1). The new sanctions imposed by the United States, the European Union (EU), the United Kingdom (UK), Canada, Australia, Japan, and others are unprecedented in terms of scope, coordination, and speed, and appear to be the overarching source of economic pressure on Russia. Other factors-including economic disruptions from the war and the pandemic-also are creating challenges. The Russian government has implemented a number of policies to mitigate the impact of sanctions, and Russia's energy exports-so far largely exempt from international sanctions-remain a major source of revenue. Figure I. IMF Forecasts for Russia - Actualized data Growth, % change 10 - -5 -10 2019 2020 2021 2022 Unemployment, % 10 2019 2020 2021 2022 Forecast made in Oct 2021 Forecast made in Apr 2022 Inflation (yr-end), % change 30 20 1-~ 2019 2020 2021 2022 Imports,% changevolume 20 o - -20 -40 2019 2020 2021 2022 Source: Created by CRS from IMF World Economic Outlook Data. Financial Sector Some of the most significant sanctions-those targeting the central bank and Russia's participation in the Society for Worldwide Interbank Financial Telecommunications (SWIFT) financial messaging system-created an immediate crisis in Russia's financial sector. The sanctions triggered runs on Russian banks, capital flight, and a 60% depreciation of the ruble in less than two weeks (Figure 2). The Russian central bank responded quickly by imposing capital controls, doubling interest rates, and providing emergency liquidity support to banks. The government closed the stock market for a month and announced no new government borrowing through the end of the year. These policy actions stemmed capital flight and restored some stability. The ruble rebounded, reaching pre-war levels by late March (Figure 2). The central bank subsequently lowered interest rates slightly and somewhat relaxed capital controls. Russia's financial stability is precarious. The ruble would almost certainly depreciate further if interest rates and capital controls were further relaxed, and Russia has defaulted on some of its debt for the first time since the 1917 Bolshevik Revolution. The Russian government is trying to boost demand for its currency by demanding payment for natural gas exports in rubles (with unclear exemptions), and Russia suspended gas supplies to Poland and Bulgaria after they refused. Figure 2. Fluctuations in the Value of the Ruble Ruble/US Dexchange rate 40 6-7 sanctions Russian central 0 Russia exparnds Russian central bank lowers ivasionof Ukr n bank internst ate 70 S. bans Russian oil 100 -hff 130 { 160 Jan 2022 Feb 2022 Mar2022 Apr2022 Source: Created by CRS using data from the Wall Street Journal. Real Economy Sanctions have disrupted Russia's real economy-the production, purchase, and flow of goods. The volume of Russia's trade has contracted sharply (Russia's imports by volume are forecast to fall by nearly 25% in 2022), and more than 750 international companies have curtailed operations in or with Russia. Many international companies have limited business with Russia beyond what is required legally by sanctions, most likely due to concerns about the prospect for future sanctions, threats of asset seizure by Russia, and reputational costs of continuing business in Russia. Several Russian factories reportedly have suspended production because they cannot access the necessary foreign parts and supplies. Russian companies cannot access essential goods and services (such as computer software or audits by major western accounting firms), and Russian consumers cannot access popular international products (including many western luxury items). Some foreign firms are major employers in Russia, and their exit is a shock to Russia's labor market. Moscow's mayor estimates that 200,000 people in the city are at risk of losing their jobs as international companies exit. The Russian government has enacted a number of policies to support domestic economic activity, as well as retaliate against sanctions. It has banned the export of more than 200 types of goods through the end of the year, established https://crsreports.congress.go%

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