Amid Russia's economic woes, billions of dollars continue to disappear in offshore havens. The net outflow of capital from Russia reached $32.6 billion during the first quarter of 2015, according to the nation's Central Bank. Mood music time. I wonder if he can play "Hebrew Melody" ?
The bank is now forecasting that capital flight may reach $131 billion by the end of the year. In reporting first quarter numbers, the Central Bank also upwardly revised the 2014 figure for net capital outflow to $154.1 billion from the previously reported $151.5 billion. That figure marks the highest annual total of capital flight since the Central Bank started tracking the trend back in 1994.
Financial experts say most of the money now fleeing Russia ends up in offshore accounts, beyond the reach of tax inspectors and other prying eyes. The budgetary implications for Russia are significant: according to Andrei Makarov, chairman of the Russian Duma's Committee on Budget and Taxation, back in 2013, when the capital flight rate was dramatically lower than it is now, capital flight cost the Russian treasury at least $22 billion in lost tax revenue.
"Capital outflow abroad leads to losses that are at least comparable to internal tax revenue losses," state-owned news channel Russia 24 reported, citing data from KPMG, a large international audit, tax and advisory firm.
The problem is not limited to tax revenue losses. "Capital flight weakens the national economy, starving it of investment funding, which further worsens the economy's development prospects," wrote economists Mikhail Gelvanovskiy and Vladislav Ovchinskiy in an academic paper that examined the economic damage done by capital flight amid the 2008 economic crisis.
Investment activity in Russia during the first quarter of 2015 dropped by more than 20 percent compared with the same period the previous year, according to the Center for Macroeconomic Analysis and Short-Term Forecasts (CMASF). Representatives of the Economic Development Ministry sought to allay concerns, contending that the overall decrease in investment is projected to be 10.6 percent in 2015. Economic Development Minister Alexei Ulyukayev also has claimed that investment would grow by as much as 3 percent in 2016, driven mainly by private investors. He provided no specifics about possible government measures to attract private investment.