January 5, 2022 MEMRI Daily Brief No. 350

In 2021, The Russian Economy Survived The Crisis, But Russians Cannot Dream Of Significant Changes For The Better

January 5, 2022 | By Dr. Vladislav L. Inozemtsev*
Russia | MEMRI Daily Brief No. 350

As 2022 begins, Russia's 2021 economic results, which appear to be the most controversial in years, should be summarized. On the one hand, the economic growth in 2021 was especially impressive when compared to the depressed economic results of 2020. Russia actually secured its fastest economic growth since 2010: The GDP is up by 4.2-4.5 percent,[1] Russia's exports grew by 42.8 percent for January-October,[2] and the annual figure will be even higher, while the trade surplus expanded to $150 billion for the same period,[3] as oil prices soared to $68.7/barrel on average for January-November[4] from $41.7/barrel for all of 2020.[5] Last but not least, the federal revenues are expected to shoot up more than 30 percent year on year, which might become the biggest increase ever recorded in the country.

On the other hand, these successes came alongside an aggravating financial destabilization. The inflation went out of control already by the end of the first quarter (the official figure for the whole year is expected at 8.4-8.6 percent,[6] the highest in six years, while the food prices grew by 10.8 percent,[7] and the rate of inflation as felt by ordinary people reached 17.7 percent),[8] forcing the Bank of Russia to increase its key rate seven times, bringing it up from 4.25 to 8.5 percent.[9] Actually, the inflation trend may continue well into 2022, since the producer prices have spiked by 29.2 percent in the last 12 months.[10] According to the latest available data, no one now believes that inflation will decrease to the four percent "target" indicated by the Central Bank in 2022 – nor, most likely, will it do so in 2023.

(Source: Twitter)

The Kremlin Increases Confidence As The Federal Budget Sees Surplus

The main reason for the government's optimism came from the rise in commodity prices. The additional revenues from oil and natural gas exports may be estimated at $80-85 billion compared to 2020 with the revenues themselves being the highest since 2014.[11] The so-called "нефтегазовые доходы [oil and gas appropriations of the federal budget]" jumped from a mere 29.5 percent in 2020[12] to 34.5 percent in January-September 2021[13] and are expected to amount to at least $125 billion in 2021.[14]

During the whole year, both the Central Bank's foreign exchange reserves and the reserves kept in the National Wellbeing Fund, administrated by the ministry of finance, have been growing (from $587.7 to $622.8 billion[15] and from $177.4 to $185.2 billion[16] between December 1, 2020, and December 1, 2021, respectively), thus increasing the Kremlin's overall confidence as the federal budget surplus for January-September approached 1.62 trillion rubles,[17] or over 1.3 percent of GDP compared to the planned deficit of 2.75 trillion rubles. Russian President Vladimir Putin even said that it is time for Western leaders to switch to a more "responsible" fiscal policy, citing Russia's experience.[18]

The major difference in 2021 compared to other quite successful years was that the government was reluctant to invest the additional revenues into Russia's economy. The only sector that recorded significant growth was the construction industry, which benefited strongly from the only massive program initiated by the federal government, that is: subsidizing the mortgage rates, limiting them to 6.5 percent per year for most of the loans[19] (this means that only loans that fit into certain "brackets" were subsidized, but the amount was sufficient to buy a standard apartment in most Russian cities). The program resulted in a record number of mortgage loans issued in 2021 (totaling 4.6 trillion rubles for January-October and expected to reach 5.5 trillion rubles,[20] or 4.3 percent of GDP, for the full year) and in a record volume of residential housing construction (around 90 million sq. meters[21] compared to 79-80 million in 2017-2020).[22]

No other industries (except the banks issuing the loans, which reported record profits for the second year in a row) showed similar progress, mainly because the final consumer demand remained weak. Reacting to the needs of its subjects but definitely not wishing to be constrained by strict obligations, the Kremlin adopted an all-new tactic of increasing neither the pensions nor the wages of public sector employees and instead issuing one-time cheques for some parts of the population (i.e., families with children, pensioners, and even military and security services personnel).

These payments in 2021 became quite significant, totaling 1.1 trillion rubles (a bit less than one percent of the GDP). The payments helped many people but did not create any government liability for future disbursements. Moreover, both the government and the president recently broke the law requiring the indexation of minimum wage that was adopted around a year ago[23] and decided to raise it by a lower margin than was required in accordance with current official inflation figures.[24] Another important move was the adoption of a new calculation of the poverty rate.[25] This new calculation made it possible for the State Statistical Committee (now directly incorporated into the structure of the federal government) to report a remarkable success in fighting poverty, which announced that by the end of 2021 there would be 2.8 million less people below the poverty line compared to 2020.[26]

Super-Rich Russians Became Even Richer

The rise of commodity prices in 2021 had a diametrically different impact on the Russian government and Russian society. First, it resulted in rapidly growing revenues and custom duties, while for the latter it caused the rising prices on almost everything and double-digit food and staples inflation since most of producers used the growing world prices for justifying price hikes on domestic market. The most important point was the fact that no stable link between government revenues and social welfare programs have been established in 2021 either on the federal or regional levels.

The same discrepancy was perfectly visible in the case of growing inequality. Russia, as one may know, has one of the least equal distributions of wealth among all the developed nations – 57 percent of its national wealth is controlled by just 1 percent of its citizens[27] (versus around 30 percent in the United States),[28] but in 2021 the contrast was especially obvious as both the stock and asset prices went up and real disposable incomes remained virtually flat due to high inflation figures. The main Russian stock market index, MOEX, gained 11.3 percent during the year (it was almost 30 percent higher at its October peaks)[29] while the average residential real estate prices in Moscow increased by more than 25 percent.[30] This trend made super-rich Russians even richer by almost 17 percent. The wealth of the richest Russians has actually grown by $65.63 billion since the beginning of 2021 (this amount of money is four times larger than what the government has spent on public education from the federal budget[31]). The Bloomberg Billionaires Index (BBI) research showed that the rating includes 27 Russian citizens.

Bureaucrats also enjoyed spectacular financial results during 2021, as bribes and illegal financial benefits collected in connection with administrating budget flows increased to at least 6.6 trillion rubles,[32] or roughly 15 percent of all federal and local government revenues,[33] according to the data recently released by the Higher School of Economics. All this benefited the Russian business and bureaucratic elites but most citizens barely mentioned it.

Some most recent trends made the Russian government even more triumphant and the overall public much less optimistic. On the one hand, the Kremlin's most valued "toy," Gazprom, became well positioned for 2022 because of the gas crisis on the European market that has been in place since September. The company pays more than two trillion rubles in taxes annually and reported its highest profits ever[34] (Gazprom was many times accused of "manipulating" the market, but the Europeans themselves laid down all the prerequisites for the gas prices rally).[35]

On the other hand, the aggressive Central Bank rate increases resulted in accelerating inflation in November and December, and the production costs started to raise again after easing a bit in early autumn. Moreover, even while many experts believed that Putin would announce new cheques for the needy at his traditional annual press conference, he remained remarkably silent on the issue, as the federal budget for 2022 looks less "socially oriented" compared with 2020 (the one with largest spending increases, benefiting the military, law enforcement, and bureaucracy).

Most seek for the pandemic to be over, and the government is preparing to fight inflation with cutting the welfare spending and rising interest rates even further.


To summarize, by the start of 2022, the Kremlin's fears caused by the pandemic will be over. The Russian economy survived the crisis quite well and now is on track for recovery, which will not be too impressive, but rather sufficient for securing the government's revenues from which the ruling bureaucracy extracts its formal and illegal benefits.

The most significant result of 2021 is the final dissociation of the state and the people in a purely economic sense. The Kremlin is now concerned not so much with the people's wellbeing or economic growth, but rather by budget revenues, commodity exports, and geopolitical adventures, while most Russians concentrate on just preserving their current quality of life without dreaming of significant changes for the better.

*Dr. Vladislav Inozemtsev is MEMRI Russian Media Studies Project Special Advisor


[1], November 28, 2021.

[2], December 2021.

[3], December 2021.

[4], December 1, 2021.

[5], January 4, 2021.

[6], December 17, 2021.

[7], December 8, 2021.

[8]—1192, December 19, 2021.

[9], December 2021.

[10], December 22, 2021.

[11], November 15, 2021;, February 13, 2021.

[12], March 2021.

[13], December 9, 2021.

[14], October 12, 2021.

[15], December 2021.

[16], 2021.

[17], 2021.

[18], October 21, 2021.

[19], April 25, 2020.

[20], November 11, 2021.

[21], December 23, 2021.

[22], January 28, 2021.

[23], December 2020.

[24], November 18, 2021.

[25], November 26, 2021.

[26], December 3, 2021.

[27], June 10, 2021.

[28], June 23, 2021.

[29], January 1, 2021.

[30], October 22, 2021.

[31], November 26, 2020.

[32], December 20, 2021.

[33], December 27, 2021.

[34], December 21, 2021.

[35], October 7, 2021.

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