Russia is on track for a record trade balance

InFOR THE DAY after Vladimir Putin’s invasion of Ukraine, Russia’s financial system seemed on the verge of collapse. The West has imposed a number of financial sanctions, in particular against the foreign exchange reserves of the Russian central bank, which led to the fall of the ruble and forced citizens to frantically withdraw cash. The central bank then raised interest rates, introduced capital controls and infused liquidity into the banking system, and some of these woes have changed. Although part of Russia’s foreign exchange reserves remain frozen, the country still receives about $ 1 billion a day from energy exports.

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Russia has stopped publishing detailed monthly trade statistics. But the figures of its trading partners can be used to understand what is happening. They believe that as imports increase and exports stop, Russia has a record trade balance.

On May 9, China reported that its exports to Russia in April fell by more than a quarter from a year earlier, while imports from Russia grew by more than 56%. In March, Germany reported a monthly drop in exports to Russia of 62% and imports – by 3%. Summing up such flows through Russia’s eight largest trading partners, we estimate that Russian imports fell by about 44% after the invasion of Ukraine, and its exports grew by about 8%.

Imports collapsed in part due to sanctions against Russia’s central bank and the expulsion of some creditors from SWIFT the interbank messaging network has made it difficult for consumers and firms to purchase Western goods. Elina Rybakova from the Institute of International Finance (IIF), a group of bankers, says regulatory uncertainty was also a big factor in the beginning as Western firms were unsure which Russian banks were subject to sanctions. Logistic failures were also important, including the decision of Western companies to suspend supplies to Russia. The early depreciation of the ruble has also weakened Russia’s demand for imports, said Klaus Vistesen of the consulting firm Pantheon Macroeconomics.

Meanwhile, Russian exports are holding up surprisingly well, including to the West. Sanctions allow oil and gas to continue to be sold to most of the world. And the surge in energy prices has further increased revenues.

As a result, analysts expect that Russia’s trade surplus will reach a record high in the coming months. The IIF estimates that in 2022 the current account surplus, which includes trade and some financial flows, could reach $ 250 billion (15% of last year GDP), more than twice the $ 120 billion recorded in 2021. The fact that sanctions have increased Russia’s trade balance and thus helped fund the war is disappointing, Mr Wistesen said. Ms. Rybakova believes that the effectiveness of financial sanctions may have reached the limit. Next comes the decision to tighten trade sanctions.

But it may take time for such measures to take effect. Even if EU If its proposal to ban Russian oil is implemented, the embargo will be imposed so slowly that the bloc’s oil imports from Russia will fall by only 19% this year, says Liam Peach of the consulting company Capital Economics. The full impact of these sanctions will be felt only in early 2023 – by this time Putin will have accumulated billions to finance his war.

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