Top Economist Says Sanctions Have Helped Russia’s Economy

Penalties helped prepare the nation for plunging oil prices, Sberbank’s Evgeny Gavrilenkov insists.


Evgeny Gavrilenkov of Sberbank CIB is celebrating his eighth straight appearance at No. 1 in Economics on the All-Russia Research Team, Institutional Investor’s exclusive annual ranking of the nation’s best sell-side analysts. The Moscow-based economist has earned a reputation for being outspoken in his views and willing to break with the consensus. “Evgeny is not afraid to put forward ideas that contradict official doctrine,” one buy-side survey participant tells II this year.

One of Gavrilenkov’s most jaw-dropping assertions is that the sanctions imposed on Russia by Western nations — in response to its annexation of Crimea and military intervention in Ukraine — have actually been good for the Russian economy.

“I believe they were timely and more helpful so far than damaging,” the 60-year-old declares. “Sanctions helped to prepare the economy for the oil drop because they were introduced well before the price of oil fell.”

Beginning in March 2014, President Obama signed executive orders freezing the U.S. assets of certain Russian companies and prohibiting specific individuals from entering the U.S. Since then a number of nations have adopted punitive measures that severely inhibit the ability of Russian corporations to borrow money and transact international business.

Without these penalties, Gavrilenkov believes, domestic oil and gas companies would have embarked on expensive drilling projects in the Arctic region in search of new sources of fuel. Exploration projects that looked reasonable when oil was $110 a barrel appear far more questionable when the price is $60, he observes.

“Energy producers got time to think. Owing to the sanctions, they didn’t borrow too much — in fact, they began to repay foreign debt,” he says. “The same is true for the rest of the economy. As a result, foreign debt decreased by $130 billion last year and by $40 billion in the first quarter of 2015.”


The drop in oil prices and attendant plunge in the value of the ruble had nothing to do with sanctions, Gavrilenkov points out. “As a result of deleveraging, the ratio of foreign debt to [real gross domestic product] remains largely unchanged — and has even decreased slightly — while without sanctions it could have jumped massively,” he says. “We could have much more problems now without sanctions.”

Not that the country is suffering from a dearth of challenges. Russia responded to the sanctions by banning the import of various agricultural products, among other moves, from countries that had acted against it. Consequently, domestic food prices surged more than 15 percent last year — the fastest pace since the financial crisis began in the fall of 2008 — prompting the Central Bank of Russia to raise its benchmark interest rate by a whopping 650 basis points, to 17 percent, in December. It has since cut the rate several times; it now stands at 12.5 percent.

In April the government reported that the economy contracted by 1.9 percent year over year in the first quarter, but that was far less than many analysts were expecting. True to his reputation, Gavrilenkov held a contrarian view. “I have to say that I don’t expect the economy to contract much this year,” he says.

Others appear to be coming around to his way of thinking. In early June the World Bank raised its Russian growth forecast for the year from a contraction of 3.8 percent to one of only 2.7 percent. “The revised forecast is largely driven by the adjustment in oil prices over the previous two months that is supporting the ruble exchange rate and a slightly faster retreat of inflation,” Russia economist Birgit Hansl said in announcing the update. “That would allow the Central Bank of Russia to pursue monetary easing at a more rapid pace for the rest of 2015, as a result bringing down borrowing costs and increasing lending to firms and households.”

Gavrilenkov is even more upbeat. “I expect contraction around 1.5 percent for the full year,” he says. “Maybe even less.”