Capital Outflow from Russia will Amount to $75bn–$80bn by the End of the Year
This week, the Central Bank of Russia released the first assessment of the Russian balance of payments in the 3rd quarter of 2012.
Revenues on the current account decreased by $8.1bn as compared to the previous quarter and amounted to $13.1bn. The balance of payments fell by $13.2bn to $28.2bn.
In the 3rd quarter, the balance of operations with financial instruments (with taking into account errors and omissions charged to capital outflow from the non-state sector) amounted to $11.5bn. It is to be noted that the net capital outflow from the non-state sector has grown a little to $13.4bn as compared to the previous quarter. From the beginning of the year, the total net capital flight amounted to $58.7bn.
The absolute value of foreign exchange interventions by the Central Bank of Russia happened to be the minimum: within a quarter about $2bn was sold. Generally, on the basis of the quarter results the Central Bank of Russia registered growth of $1.5bn in reserve assets. It is to be noted that a considerable contribution both to stabilization of the capital outflow and growth in the Russian Central Bank’s reserves was made by a sale of $5bn worth of a package of the Sberbank’s equities placed mainly with foreign investors.
Large-scale volumes of capital outflow can be explained by a combination of the following two factors: first, foreign investors do not take much interest in Russian assets. In the past few years, the gross inflow of foreign capital (net growth in liabilities to non-residents) has not exceeded 5% of GDP. So, in 2010 and 2011 that index amounted to 2.9% and 3.8% of GDP, respectively, while for three quarters of 2012, to about 3.5% of GDP. At the same time, before the crisis (from 2005) that index did not fall below 10% of GDP, while in 2007 and the first half of 2008 it amounted to 13%–16% of GDP. In absolute terms, the annual volume of liabilities to non-residents decreased from $200bn before the crisis to $70bn in the 2011-2012 period.
The second factor consists in a change in the foreign exchange policy by the Central Bank of Russia. With a switch-over to the inflation targeting regime and abandonment of target benchmarks – which measures were declared as a main mid-term objective – the Central Bank of Russia is already bringing to the minimum its presence on the foreign exchange market. As a result, the balance of operations with capital and financial instruments is determined to a greater extent by the amount of the current account.
From the macroeconomic point of view, a large positive current account balance predetermines capital outflow in the same volume. However, before the 2008 crisis the Central bank of Russia used to stick to the policy of managed floating of the ruble by means of buying out all the foreign exchange surpluses. As a result, in that period the outflow of capital was mainly carried out in the form of accumulation of foreign exchange reserves of the Central Bank of the Russian Federation.
Such a situation will prevail in the mid-term prospect. On the basis of the results of 2012, it is expected that the net capital outflow from the non-state sector of the economy will amount to $75bn to $80bn (according to the forecast of the Central Bank of Russia it will amount to $65bn) which is equal to the last year’s value, while in future it is determined by a combination of the factor of price on Russian export commodities and foreign investors’ willingness to take risks.
М.Yu. Khromov, Researcher of the Structural Research Center
In the 3rd quarter, the balance of operations with financial instruments (with taking into account errors and omissions charged to capital outflow from the non-state sector) amounted to $11.5bn. It is to be noted that the net capital outflow from the non-state sector has grown a little to $13.4bn as compared to the previous quarter. From the beginning of the year, the total net capital flight amounted to $58.7bn.
The absolute value of foreign exchange interventions by the Central Bank of Russia happened to be the minimum: within a quarter about $2bn was sold. Generally, on the basis of the quarter results the Central Bank of Russia registered growth of $1.5bn in reserve assets. It is to be noted that a considerable contribution both to stabilization of the capital outflow and growth in the Russian Central Bank’s reserves was made by a sale of $5bn worth of a package of the Sberbank’s equities placed mainly with foreign investors.
Large-scale volumes of capital outflow can be explained by a combination of the following two factors: first, foreign investors do not take much interest in Russian assets. In the past few years, the gross inflow of foreign capital (net growth in liabilities to non-residents) has not exceeded 5% of GDP. So, in 2010 and 2011 that index amounted to 2.9% and 3.8% of GDP, respectively, while for three quarters of 2012, to about 3.5% of GDP. At the same time, before the crisis (from 2005) that index did not fall below 10% of GDP, while in 2007 and the first half of 2008 it amounted to 13%–16% of GDP. In absolute terms, the annual volume of liabilities to non-residents decreased from $200bn before the crisis to $70bn in the 2011-2012 period.
The second factor consists in a change in the foreign exchange policy by the Central Bank of Russia. With a switch-over to the inflation targeting regime and abandonment of target benchmarks – which measures were declared as a main mid-term objective – the Central Bank of Russia is already bringing to the minimum its presence on the foreign exchange market. As a result, the balance of operations with capital and financial instruments is determined to a greater extent by the amount of the current account.
From the macroeconomic point of view, a large positive current account balance predetermines capital outflow in the same volume. However, before the 2008 crisis the Central bank of Russia used to stick to the policy of managed floating of the ruble by means of buying out all the foreign exchange surpluses. As a result, in that period the outflow of capital was mainly carried out in the form of accumulation of foreign exchange reserves of the Central Bank of the Russian Federation.
Such a situation will prevail in the mid-term prospect. On the basis of the results of 2012, it is expected that the net capital outflow from the non-state sector of the economy will amount to $75bn to $80bn (according to the forecast of the Central Bank of Russia it will amount to $65bn) which is equal to the last year’s value, while in future it is determined by a combination of the factor of price on Russian export commodities and foreign investors’ willingness to take risks.
М.Yu. Khromov, Researcher of the Structural Research Center