Russia’s former Finance Minister Alexei Kudrin, a long-time ally of President Vladimir Putin, says the Russian economy is in a “full-blown crisis” — comparable to the 2009 crisis — and warns that the nation will endure a longer recession than is forecasted by the government.
Kudrin, during an address on Wednesday to the Federation Council upper house of parliament in Moscow, highlighted that the crisis is fueled by the obvious capital flight, low economic growth amid the conflict in eastern Ukraine and associated western sanctions compounded by low global oil prices, and is urging the central bank to refrain from any further interest rate cuts as economic risks persist.
“We are now in a full-fledged crisis,” Kudrin said. “The situation in the real sector is still very bad.”
Capital flight from Russia last year was at $150 billion and will be some $100 billion-$110 billion in 2015, Kudrin said, adding that the private sector was mainly responsible for the capital flight as people were taking their money out of Russia because “something doesn’t work here.”
Kudrin, Finance Minister from 2000-2011, estimates that Russia’s gross domestic product (GDP) will fall around 4 percent in 2015 and may continue shrinking into the first quarter of next year, putting the economy on track for zero growth in 2016. In contrast, Russia’s Economy Ministry estimates a GDP contraction of 2.8 percent this year with an expansion of 2.3 percent in 2016.
Russian government officials have said that the worst of the economic crisis has already passed, however Kudrin says he disagrees, and warns that companies are only now beginning to feel the pain of collapsing demand.
The ex-Finance Minister said the current economic model in Russia “needs to change” and that the current economic problems in the country were due to the “absence of structural reforms” in recent years and an over-reliance on energy exports.
Kudrin said that the Ukraine crisis which resulted in international economic sanctions imposed on Russia were reducing Russia’s GDP by between 1 to 2 percent per year.
He added that around 500,000 people in Russia will lose their jobs amid the economic crisis.