Shadow Economy in Russia Refuge for Population and Means for Regime to Present Situation as Better than It Is, Vardul Says

Paul Goble

            Staunton, April 23 – Off-the-books incomes in Russia today “not simply a means of maintaining a minimum standard of living” for the population but also a way for the government to save face because by counting more and more of the shadow sector in official reports, it can make it appear there is growth when in fact there is a continuing decline, Nikolay Vardul says.

            That is because in recent years, the authorities have sought to count more and more of money in the shadow economy as part of the official economy, a bookkeeping method that makes it appear that the country’s economy is doing better than in fact it is, the HSE economist says (mk.ru/economics/2021/04/22/tenevaya-ekonomika-prevratilas-dlya-rossiyan-v-sredstvo-socialnoy-samooborony.html).

            Vardul’s reflections on this point have been sparked by a new bank survey which finds that 81 percent of Russians believe they will have to use cash rather than credit cards for at least another decade and by the decision of Rosstat to delay the publication of economic figures until after Vladimir Putin’s address to the Federal Assembly.

            The belief among Russians that cash remains important to them means that “the mass support for that may be interpreted as an indicator of the size of the shadow economy” in Russia. In 2017, Rosstat estimated it at 12.7 percent of GDP, but the IMF said it was more like 33.7 percent, ranking Russia behind only Ukraine, Nigeria and Azerbaijan.

            The new bank survey, the HSE economist continues, shows that Russians “live precisely in that economic reality which to a significant extent is in the shadows. More than that,” it calls attention to the fact that Rosstat has been playing games with this reality to make the government’s performance appear better than it has in fact been.

            By counting part of the shadow economy as if it were part of the regular one, something Rosstat has done increasingly since 2019, the statistics agency had deceived some into thinking that the economy is improving when “in fact, the level of incomes hasn’t changed. Simply part of the shadow incomes has been included in the growth of real incomes.

            But this has not led to a decline in the size of the shadow economy but rather to its growth, Vardul suggests, because even though the government counts these shadow amounts as part of its general income figures, it has done nothing to reduce the benefits to those who escape taxes by remaining in the shadows.

            As a result, it is increasingly the case that Russia’s “shadow economy is being transformed into a certain portal which entrepreneurs who are not completely law abiding and citizen who are forced to boost their incomes in any way possible” by not paying taxes and other duties to the state. At least for the immediate future, there is little prospect that trend will change.