Even though the Russian leadership is reluctant to admit it, Western sanctions over the attack on Ukraine are increasingly affecting the country. The behavior of the Moscow government now suggests that Russia needs financial help from allied states – such as China.
Recently, Russian Prime Minister Mikhail Mishustin said there are plans to issue Russian government bonds in foreign currencies, including Chinese yuan. According to British intelligence, the move is an indication that Russia is preparing to receive financial aid from abroad.
Foreign investors would finance war
According to the government in London, the Russian leadership probably sees the issuance of government bonds in foreign currency as a measure to close holes in its own budget. Investors from other countries should soon be able to buy Russian government debt and mitigate some of Russia’s future budget deficits. They would thus indirectly finance the Russian invasion of Ukraine.
In recent months, it was mainly Russia’s own banks that bought Russian government bonds. However, they are unlikely to be able to fully finance projected future budget deficits – they are struggling themselves.
Second largest bank loses billions
So hat Russia’s second-largest bank, VTB, posted a billion-dollar loss last year in response to Western punitive measures. The bottom line was a minus of about 612 billion rubles (about seven billion euros) in 2022, the financial institution announced on Wednesday. In 2021, VTB had made a net profit of 327.4 billion rubles.
The bank has become the “first target of the biggest possible sanctions”, which has brought it huge losses, said the bank’s chief financial officer Dmitry Pianov. VTB, once well connected internationally, was one of the first banks to be excluded from the international SWIFT payment system in response to the military operation in Ukraine. Bank boss Andrei Kostin, a confidant of Kremlin boss Vladimir Putin, also received personal sanctions from Great Britain and the US, among others. The Russian state is the majority shareholder of VTB.
sanctions work
Russia can still cushion its deficit somewhat by using the National Wealth Fund. But that reserve is melting away. By the end of 2024, the fund is expected to be just 3.7 percent of GDP. So it’s no wonder that Russia is looking for ways to plug its financial holes – and that Putin himself recently spoke for the first time about the “negative consequences” of Western sanctions.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
