- Corporate bankruptcies in Russia soared in the first two months of 2024.
- Russia has granted two bankruptcy moratoriums in recent years, but both have now expired.
- High interest rates and macroeconomic instability are increasing pressure on the private sector.
After two years of war with Ukraine, Russia's economy appears resilient, but the number of domestic companies is increasing.
The number of companies that went bankrupt in Russia has sharply increased in the first two months of 2024, the Russian business newspaper Kommersant reported on Thursday.
Kommersant, citing data from the Federal Insolvency Register, said 571 companies declared bankruptcy in Russia in January. This is a 57% increase from 364 companies a year ago.
In February, 771 companies declared bankruptcy, 60% more than the 478 companies a year earlier.
Russia has imposed two bankruptcy moratoriums in recent years. The first incident occurred during the coronavirus disease (COVID-19) pandemic that began in 2020. The second time came after Western countries imposed sanctions on Russia over its 2022 invasion of Ukraine. The grace periods expired at the end of 2021 and 2022, respectively.
Russia's First Deputy Economy Minister Ilya Trosov told Kommersant that this was just a return to pre-pandemic levels.
Difficulties on the ground in Russia
The increase in corporate bankruptcies highlights the difficulties facing Russia on the ground. This also contrasts with Russia's rosy official statistics released by the Kremlin. GDP grew 3.6% in 2023.
Russia's wartime economy has been resilient thanks to government spending, but high interest rates have made it difficult. The Bank of Russia has raised interest rates by up to 16% to cool the economy and curb inflation.
“The effects of monetary tightening are starting to take hold and companies are having trouble refinancing,” Bartosz Savicki, a market analyst at Polish fintech company Konotoxia, told Business Insider.
Outside of war-related sectors such as arms production, Russia's economy looks “far from rosy,” Savicki said.
“Russian companies are doing everything they can to avoid sanctions, but international trade has become a significant issue for many,” Sawicki wrote in an email.
“The private sector is also feeling the pressure of macroeconomic instability, which is becoming more acute as the economy teeters on the brink of overheating,” he added.
It could get worse.
Russian President Vladimir Putin's government has tightened restrictions on Western trade, including secondary sanctions on companies doing business with the country.
Putin also promised to provide billions of dollars in lifestyle improvements to Russians in the weeks before they head to the polls in a presidential election later this month.
It is unclear where the additional funding for Putin's pledge will come from, but the Russian leader has proposed changes to the tax system aimed at collecting more taxes from high-income individuals and businesses, and private sector This could put even more pressure on companies.
Russia's presidential election is scheduled to be held over three days from March 15 to 17, with Putin expected to win against three opponents.
