In the leaked document, the ministry predicts a painful 12% fall in Russia’s GCDP for 2022. This is the biggest fall since Boris Yeltsin took the helm in 1994 for the post-Soviet transition, and will see ten years of growth fade away.
Since Russia invaded Ukraine in February, the Kremlin has been hammered by Western sanctions aimed at crippling Russia’s ability to wage war.
Russia narrowly avoided defaulting on a slew of foreign debts earlier this month in what would have been the first time it missed the payment deadline since the 1917 revolution.
Russia has turned to its scarce reserves of dollars to pay the £526 million owed to foreign investors, after a desperate attempt to pay its bills using frozen assets used to fund its war effort.
But these were blocked by Western sanctions, so the Kremlin sought to pay in rubles, which was rejected by investors.
The Russian government has been tight-lipped on its economic forecasts, but the finance ministry report, seen by Bloomberg, is more bad news for Vladimir Putin.
The outlook shows a bleaker picture than forecasts from the central bank and the International Monetary Fund, with the latter pricing the projected decline at 8.5%.
The Bank of Russia said late last month that it expected an 8-10% contraction this year, and a Bloomberg survey put the figure at 10.3%.
Russia’s economy shrank 7.8% in 2009, following the global financial crisis, and fell 3% as the coronavirus pandemic wreaked havoc.
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Natalia Lavrova, chief economist at the BCS FInancial Group in Moscow, told Bloomberg that the “main negatives” were a combination of “the oil embargo, the EU abandoning Russian gas, as well as more departures among companies foreign”.
She added: “This is all likely to expand gradually, with a lot of negative carryover into 2023.”
The UK and US have already pledged to get rid of Russian oil, with President Biden banning all Russian energy imports in early March.
In a White House statement, the US government said: “By isolating the Central Bank of Russia and cutting off Russia’s largest banks from the international financial system, we have decommissioned its war chest of foreign exchange reserves and let Putin mitigate the blow of our penalties.
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“U.S. and allied export controls are impacting industrial production in Russia, Russian commercial aviation, and other key sectors of the Russian economy.”
On the same day, the UK announced that it would phase out all imports of Russian oil by the end of the year.
The Department for International Trade also announced on Monday that the United Kingdom was imposing a new wave of sanctions on Russia and Belarus.
Affecting £1.7bn of trade, new import tariffs will be added to products such as palladium and platinum, as well as export tariffs on chemicals and plastics.
But as Putin addressed the crowds at the Victory Day parade in Moscow on Monday, the EU struggled to reach consensus on an oil embargo against Russia.
EU member Hungary remains strongly opposed to the move as diplomats in the bloc failed to reach a decision on its sixth round of sanctions.