The crisis has profound risks for Putin’s leadership, which has not been decisive or generous enough taking action against COVID-19

How has the Russian Government performed during the COVID-19 crisis and what steps do they need to take to support people and the economy? Elias Papaioannou, Professor of Economics at London Business School and Academic Director of the Wheeler Institute for Business and Development was joined in conversation with Sergei Guriev, Professor of Economics at Sciences Po, to discuss how the coronavirus pandemic is impacting Russia. 

  • Russia should deploy a ‘war-chest’ of savings to counteract the impact of the Coronavirus, allowing them to expand healthcare capacity as well as support their economies; 
  • To date, the Russian government has not gone far enough with fiscal support measures or enforced the lockdown to the required extent; 
  • The collapse of commodity prices is causing the greatest crisis the Putin regime has faced and his popularity has fallen over the course of the year; 
  • Long term factors, such as a decline in demand for oil, will mean the government will have to adapt and become more friendly on the global stage and attract international investment; 
  • Russia’s continued isolation means there is greater opportunity for international companies to invest in Eastern Europe, where countries can provide cheap labour in return for capital and cash; 
  • The crisis might lead to people respecting science and expertise to a greater extent, this could be beneficial to ‘Green’ parties who advocate measures to avert climate change, as they can cite a similar argument used during the pandemic, that their measures will save even more lives, and the planet as a whole.  

The Russian Government needs to be stricter with lockdown measures and more generous supporting people who have lost income 

Professor Guriev stresses that the challenge for emerging markets is unlike the one that faces developed economies. Developing countries do not have the fiscal space or debt capacity to put in place support mechanisms or debt capacity. While some, such as Russia, Kazakhstan and Azerbaijan have ‘war chests’ or ‘rainy-day’ funds built from historic oil exports, but most do not have the cash, nor the health system capacity, that they need to confront the pandemic. Furthermore, the crash in oil prices has led to a significant decrease in the value of many of these country’s main export, hitting countries such as Russia extremely severely.  

According to Guriev, Russia has taken exemplary steps from a monetary perspective. They moved to a flexible exchange rate in 2014 and has been targeting inflation in a disciplined manner. With the oil price going down, the rouble has also tumbled, restoring competitiveness. The main challenge comes from a fiscal perspective, and indeed, the health care system is not comparable to global ‘gold’ standards. Moscow in particular, which is better funded than the rest of the country, is particularly vulnerable as the city is the most integrated part of Russia, resulting in a risk of overflowing hospitals.  

Independent economists have recommended that the Russian Government should allocate funds to extend the healthcare system’s capacity and provide the necessary support to businesses during the lockdown. So far, the Government has only allocated a package of around 2% of GDP, half of which is a delay of tax payments, rather than the 6/10% of GDP advocated by Guriev. His concern is heightened because people are becoming desperate and therefore returning to the streets in order to make money to buy food, heightening the risk of a second outbreak. 

Guriev believes Russia has not been hit as hard by the COVID-19 pandemic because Russians do not travel as much to European cities or visit ski resorts as they did when the oil price was above $140 per barrel and they are disconnected from the global economy because of sanctions. Guriev warns that this has simply delayed the crisis and that at the time of writing, Russia is only second to the United States in terms of daily new cases, which is in the tens of thousands.  

Putin’s government has never experienced oil prices this low; will this lead to a similar reaction against his leadership that saw other Russian leaders lose power 

History shows that low commodity prices are correlated with political instability. Putin’s government is facing pressure because oil prices have fallen so dramatically, which is impacting the President’s popularity. Opinion polls of approval ratings are no longer published, having come down from 45% earlier in the year. Putin’s regime is facing the most difficult crisis of its lifetime because he has antagonised the rest of the world to such a great extent he cannot step down.  

It is much more difficult to predict the future of non-democracies, according to Guriev, as so much of the power is concentrated in the personality of the leader and there is no stable transition between leaders. The safest bet is status-quo because Putin has been running the country for 20 years. However, the recession will be painful because the government has not been generous in its measures, while the oil price will not recover due to changes in consumption, which will limit the amount of oil needed for activity such as air travel. This will mean Putin’s regime might have to adjust and become less internationally aggressive as it seeks international investment, but Guriev predicts this is unlikely given Putin’s leadership record over the last 20 years.  

There will be an opportunity for international investment in Eastern Europe where countries can offer cheap labour in return for capital and cash 

Online businesses will continue to prosper as Russia has done a good job developing its ‘fintech’ payment systems, food delivery and eCommerce sector, which has functioned well during the lockdown. However, many Russian small businesses, despite being well developed and sophisticated, will disappear due to the crisis. The continued isolation of the Russian economy will lead to few opportunities for international companies. This means there is a greater likelihood that Russia’s neighbours will welcome international investment to a greater extent, as the crisis will be devastating for these emerging markets. They will need capital and cash and therefore interested in bringing in international companies. Currency devaluation will mean labour in these countries will be cheaper, so they will be good places to build a company that export to neighbouring high-income countries.  

It is not enough to win the war against the virus, it is important to tell voters that expertise and competence matters, which could strengthen ‘green’ policies  

Guriev also believes that the credibility of experts and demand for expertise has risen as a result of the crisis. Populists such as Trump and Bolsonaro have not been very competent because their narrative is anti-expertise, so Guriev hopes that the attractiveness of their message has decreased. Unfortunately, these leaders are also adept at shaping the narrative, which means they will be able to shift blame to retain support.  

The pandemic, according to Guriev, could increase respect for science and taking responsibility for the planet, which will help the green parties, who advocate respecting nature, and warn that climate change may result in more pandemics. Similarly, they can cite the argument that, for example, we sacrificed 5% of global GDP, because we wanted to save lives. Climate change potentially is going to cost a lot of lives, so we should sacrifice money to slow it down. This argument will become stronger because governments have decided to spend 5%, 10% or 30% of GDP, ‘to save lives’. This could have long-lasting implications for the political landscape in Europe and globally. 


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Elias Papaioannou’s conversation with Sergei Guriev is part of the Wheeler Institute’s COVID-19 series – bringing together the expertise and experience of our extended community to understand, illuminate and offer solutions to the challenges created by COVID-19. Our differentiating factor is the role of business in addressing these challenges, with a focus on the implications and actions for those in developing countries.   

If you’re interested in following the Wheeler Institute COVID-19 series, check out our next episode, ‘This can be the biggest emerging market crisis ever,’ with Sebnem Kalemli-Ozcan.

Elias Papaioannou is academic director of the Wheeler Institute for Business and Development and professor of economics at London Business School, focusing on international finance, political economy, applied econometrics and growth and development. 

Sergei Guriev is the Scientific Director of Sciences Po’s Master’s and PhD programmes in economics. He is a Research Fellow at the Center for Economic Policy Research (CEPR) and member of the Executive Committee of the International Economic Association. In 2016-19, he served as the Chief Economist at the European Bank for Reconstruction and Development. 

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