Ukraine Economic Outlook: Cost of Crimea

The results of a study about Russia’s economic losses due to the annexation of Crimea were presented in Washington, D.C. several weeks ago.

The work, titled “Price of Crimea” was presented by Ukraine Economic Outlook editor Mykhailo Kukhar at the Mortara Center for International Studies at Georgetown University. The report was a collaborative effort between Ukrainian, Russian and American economists,

Due to the decline in world prices for energy raw materials, sanctions, capital outflow and deterioration of the investment climate following Russia’s illegal annexation of Crimea, in 2014-2018, the Russian economy as a whole lost $ 3.6 trillion, the study said.

Source: International Monetary Fund, World Economic Outlook Database, October 2018, Ukraine Economic Outlook staff calculations

The net “cost” of Russia’s annexation of Crimea and invasion of Donbas for the Russian economy as at the end of 2018 was $ 2.4 trillion. The assessment is based on a comparative analysis of the rate of decline of the Russian economy with other commodity countries of the CIS during 2014-2018.

Source: World Economic Outlook Database (IMF), Ukraine Economic Outlook staff calculations

In 2018, Russia’s economy continued to fall – by 0.1%, to $1.58 trillion, 68.6% of the 2013 level ($2.3 trillion).

At the same time, other CIS countries, whose economies are also sensitive to world commodity prices, lost on average only 21% of the peak values of GDP during 2013. Armenia (+12.5% -to the level of 2013), Azerbaijan (-38.5%), Belarus (-24.6%), Kazakhstan (-22.2%), Kyrgyzstan were included in the sample for comparison. (+9.2%), Moldova (+22.2%), Uzbekistan (-25%) and Tajikistan (-13.6%).

Kukhar attributed the deeper rates of decline in the Russian economy in 2014–2018 to the negative impact of international sanctions, the general deterioration of business conditions in the Russian Federation and the decline in the attractiveness of the Russian Federation for foreign investors.

According to Russia’s Central Bank, capital outflow from Russia over the past four years amounted to $317.7 billion. By comparison, during the global crisis of 2008–2009, the negative balance of the capital account of the Russian Federation was $191.1 billion.

Analysts at Bloomberg Economics, meanwhile, have estimated that sanctions have knocked as much as 6 percent off Russia’s economy over the past five years. A study (only available for Bloomberg Professional Service subscribers) published by analyst Scott Johnson late last year found that the economy of the world’s biggest energy exporter is more than 10 percent — or $150 billion — smaller compared with what might have been expected at the end of 2013. Four percentage points of that come from the drop in oil prices, but sanctions and other factors are to blame for the rest.

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