Pressure on Russian balance of payments eases as capital outflow slows

Pressure on Russian balance of payments eases as capital outflow slows
Russia’s current account surplus shrank by over 60% in the first quarter.
By Henry Kirby in London April 18, 2016

An 80% decrease in capital outflows during the first quarter has eased the pressure on Russia’s balance of payments (BOP), data released last week by the Central Bank of Russia (CBR) has shown.

The $7bn of capital leaving Russia in the first quarter marked a fivefold decrease from the $32.9bn outflow recorded in the same period of 2015, softening the blow of a sharply weaker current account surplus resulting from low oil prices.

For net exporting Russia, a healthy current account surplus should be a given, yet for much of the last two years the balance has been hit hard by the reduced price of oil, its main export, and by international sanctions. Russia’s current account surplus shrunk by over 60% in the first quarter of 2016, compared with the same period a year earlier.

Combined with the vast capital outflows of 2014 and 2015, and the implications for Russia’s balance of payments were grim. Indeed, subtracting the total quarterly capital outflows from the country’s current account surplus produced a negative figure in every quarter from the beginning of 2013, ending only in the third quarter of 2015, as the bneChart shows.

While the current account and capital outflow figures are not intrinsically linked, they both play a key role in the Russia’s overall balance of payments. Even at the reduced levels of the past two years, Russia’s current account surplus was enviable by international standards, yet the negative effects of capital outflow exceeded the positive impact of the current account surplus for much of the last three years.

The sanctions imposed on Russia following the annexation of Crimea cut most Russian corporates off from the international capital markets. As a result, they were unable to refinance much of their debt obligations, instead having to pay down the debt rather than roll it over. This resulted in capital outflows that peaked at a massive $76bn in the fourth quarter of 2014.

Since then, capital outflow has fallen as principals were repaid and other sources of financing were found. Central bank data indicate $25bn of scheduled debt repayments for the first quarter of 2016, yet outflow was only a net $7bn, suggesting that Russia is indeed managing to refinance its liabilities.

The steadying of the ruble after 12 months of freefall following the CBR’s abandonment of its exchange corridor will also have led to a slowdown in the levels of foreign currency purchases that contributed so heavily to the capital flight of the last two years.