Corporate bankruptcies rise sharply amid sanctions

• Corporate bankruptcies in Russia rise sharply in two months to 2024
• Russia imposed Two prohibitions on bankruptcy In recent years, both have now become obsolete.
• High interest rates and macroeconomic instability are adding pressure to the private sector.

Russia's economy appears resilient after two years of war with Ukraine, but a growing number of companies in the country are in trouble.

The number of bankrupt companies in Russia rose in the first two months of 2024, Russian Business Daily reported Commercial reported on Thursday.

In January, 571 companies declared bankruptcy in Russia – a 57% jump from 364 a year earlier, Kommersant reported, citing data from the federal register of bankruptcies.

In February, 771 companies declared bankruptcy – 60% more than the 478 that did a year ago.

Russia imposed Two prohibitions on bankruptcy In recent years. The first came during the COVID-19 pandemic that began in 2020; The second came after the West imposed sanctions on Russia over Russia's invasion of Ukraine in 2022. The moratoriums expire in late 2021 and 2022 respectively.

Russia's First Deputy Economy Minister Ilya Dorozov told Kommersant that this was only a return to pre-pandemic levels.

Difficulties on the ground in Russia

The rise in corporate bankruptcies highlights the difficulties being faced on the ground in Russia. This is in contrast to the Russian official figures published by the Kremlin, which are 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 raised interest rates to 16% to cool the economy and control inflation.

„Companies are having problems refinancing as the effects of monetary tightening start to kick in,” Bartosz Sawicki, market analyst at Polish fintech firm Konotaxia, told Business Insider.

Apart from war-related sectors such as arms production, the Russian economy is „far from rosy,” Sawicki said.

„While Russian companies are doing their best to avoid sanctions, international trade has become a significant issue for many of them,” Savicky wrote in an email.

„The private sector is also feeling the pressure of macroeconomic instability, which is deepening as the economy teeters on the brink of overheating,” he added.

It could get worse.

Russian President Vladimir Putin's regime is tightening Western trade restrictions, including secondary sanctions against companies doing business with the country.

Putin has pledged billions of dollars in lifestyle improvements to Russians weeks before the country goes to the polls for a 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 higher taxes from high-income individuals and businesses — which could put even more pressure on private companies.

Russia's presidential election will be held over three days from March 15 to March 17. Putin is expected to win the election against three opponents.