Economic Fortunes Improving in Ukraine, Russia, and Eurasia
2 October, 2017

Sergei Guriev was one of Russia’s top economists and the rector of Moscow’s New Economic School. Then, in 2013, he abruptly fled the country fearing arrest for contributing to a report critical of the prosecution of oligarch and Kremlin critic Mikhail Khodorkovsky.

Since then, Guriev’s professional star has not fallen. In 2015, he became chief economist of the European Bank for Reconstruction and Development. Last year, he even returned to Russia to give several speeches.

Hromadske caught up with Sergei Guriev in Latvia at the Riga Conference, held September 29 and 30, to get his perspective on the economic fortunes of Russia and Ukraine. He said that Russia is exiting the recession it has been in for three years and starting to grow again.

Economists have also come to a general consensus that the Ukrainian economy is now experiencing 2-3% growth. Guriev praised Ukraine’s reform efforts, but noted that the continued implementation of reform is critical to ensure continued economic growth.

Here’s what Sergei Guriev told Hromadske.

The obvious question still, we talked a couple years ago when the Russian sanctions were imposed and you said that they would be bearable for Russia. Though there is this school of thought, people who say that that would make Russia make some concessions. So what is the real impact of the international sanctions on Russia?

I'm very glad I said they were bearable because they are. Russia indeed is finishing the recession, starting to grow. The growth is very slow because Russia is isolated from global markets, global technology, global investment and not implementing special reforms, [it] is not going to grow faster. The consensus is one or two percent growth, probably closer to two these days as oil prices are higher than expected. But Russia managed to cut budget spending and pretty much balance the budget. Currently, with current oil prices, we expect that in the next two or three years the Russian budget will be more or less balanced, maybe [with a] one percent deficit. So in that sense, Russia managed to overcome the recession that came at a cost to households, which saw a decrease in income by something like ten or fifteen percent, but overall the economy is now growing, the budget is balance and in that sense, we don't see disastrous implications.

Would you say that the sanctions were useless in that way? That this instrument isn't really something which would lead to something?

I think the intention of imposing sanctions was to change Russian foreign policy behavior. I am here as the chief economist for EBRD and my job is to talk about economics of the region, economics of our countries of operation. We have other people in the bank who can talk about other political aspects our countries of operation and that's not my job.  

Overall, of course, we can already have some assessment of the Ukrainian reforms. Some people would say they are very slow. But on the economic side, especially the view from outside is that the country is moving. It’s not on the edge of default any longer. But what would be your assessment of the way the Ukrainian economy is doing? If we also compare to what it could have been in and positive terms?

I think there is indeed a consensus that the Ukrainian economy is now growing at two percent or maybe three percent depending on the implementation of reforms. Indeed, some reforms that were promised are happening slower than expected. But yet there are major achievements that we cannot deny. Ukraine has cleaned up the banking system, Ukraine stabilized macroeconomics after huge devaluation. Ukraine is managing inflation down in a reasonable way, budget deficits have been cut from ten percent of GDP to two or three percent of GDP. And there are general successes in fighting corruption, although there is only the beginning of this work. There are many more reforms to implement and  we see setbacks in, for example, improving corporate governments in Naftogaz. We see that privatization has not started yet. Land reform, pension reform are being discussed and probably will be implemented, but not yet. So all of these issues are on the agenda and implementing those reforms is crucial for having Ukraine grow faster. And yet, again, electronic procurement system is definitely a major step forward. Nationalization of Privatbank is also a step forward. So there are many things that were very difficult and they have been done.

Overall if you speak about the region, I mean Belarus, the Caucasus, Moldova, is it really, usually you don’t, there is always the potential but in the end these are not the most prosperous regions of Europe. So where are those economies moving?

If you think about the whole region of EBRD countries, this region is underperforming growth rates of similar countries. So if you look at countries with a similar level of development, in recent years our region has grown slower than other emerging markets. However, it is growing faster than a year ago and two years ago. And this is actually the first year where almost every country of the region, of countries of operation, will be growing. In May we unveiled our regular forecast, the next one is coming in November. In May our forecast for 2017 was that except for Belarus and Azerbaijan every country would register positive growth. And that includes Ukraine, and that includes Cyprus and Greece. And Belarus and Azerbaijan were projected to contract very slightly. And now we’re probably revising our forecast for Belarus upwards, so Belarus will come out of recession. So we are really in positive territory for almost every country in the region.