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Evaluation of sanctions' impact on the cost of financing for Russian companies

Omel'chenko A.N. Central Economics and Mathematics Institute, RAS, Moscow, Russian Federation ( alexey.omelchenko@mail.ru )

Khrustalev E.Yu. Central Economics and Mathematics Institute, RAS, Moscow, Russian Federation ( stalev@cemi.rssi.ru )

Journal: Economic Analysis: Theory and Practice, #10, 2016

Importance Sanctions against Russia were introduced by the US and EU countries more than two years ago. The quantitative estimation of the impact of sanctions is quite important; it is a subject of a number of studies by Russian and foreign authors.
Objectives In the study, we make an attempt to assess the impact of sanctions on the cost of financing for Russian companies. The paper also overviews the latest research papers and summarizes the estimates of the effect of sanctions on GDP growth, capital outflow, inflation, rate of exchange.
Methods We employ a combination of methods and principles of scientific knowledge and research, techniques of logical and statistical analysis.
Results We review the dynamics of effective interest rates of Russian issuers' Eurobonds (an increase in the cost of external financing in Euro and USD is about 0.5–1 percent per annum) and the indirect effect of sanction on the cost of Russia’s sovereign debt. Based on the statistics of the Bank of Russia, we analyze the impact of sanctions on the weighted average interest rates of long-term financing (over one year maturity) for Russian companies.
Conclusions The paper unveils the implications of increased interest rates for Russian companies. In general, the sanctions had a short-term effect (12–13 months) on the cost of financing. Despite the fact that peak interest rates passed, the cost of short-term funding in 2015 exceeded the working capital margins in most sectors of the Russian economy (except oil and gas).


The model of Sanction Intensity Index: Evidence from Russia

Omel'chenko A.N. Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russian Federation ( alexey.omelchenko@mail.ru )

Khrustalev E.Yu. Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russian Federation ( stalev777@yandex.ru )

Journal: National interests: priorities and security, #1, 2018

Importance The assessment and evaluation of an impact of sanctions on various economies are important and timely, being the subject of some researches by foreign and Russian authors.
Objectives We attempt to build a simple model of the sanction intensity index with evidence from Russia. To assess an impact of different sanctions, we included not only the volume of bilateral trade relations with Russia, but also a percentage of respective currency in the foreign debt of Russia’s economic sectors, size and coherence of legal entities and financial institutions subject to financial sanctions, and role of the sanctioned country in tight oil and gas production.
Methods We use a set of methods and principles of scientific cognition and research, methods of logic and statistical analysis as the methodological framework.
Results The modified sanction index gives a more detailed view of trends and severity of sanctions in comparison with the proposed indicator. We demonstrate that the intensity of sanctions falls if specific factors are considered. The proposed index can substitute the political risk factor in macroeconomic models of Russia and debt capital market development modeling.
Conclusions and Relevance Having analyzed resultant weights of the modified sanction index, we found that sanctions against too-big-to-fail banks have the strongest effect. Sanctions against the Oil&Gas sector have the least significance for the debt capital market of Russia since the Oil&Gas sector accounts for a small share in external financing. The effect grows in the mid term if we consider investment expenses for exploration and production of oil and gas, with some of them being financed through the debt.


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