Russia’s current account surplus falls by $16bn to $31bn in 4Q22

By bne IntelliNews January 27, 2023

The value of imports into Russia in the fourth quarter of 2022 decreased at a slower pace year on year, the Central Bank of Russia (CBR) reported on January 26.

The positive change was driven by the reorientation of imports to countries that had not introduced sanctions against Russia and by the expansion of parallel imports, the CBR said in a report.

“In the fourth quarter, the value of goods and services exports started to decrease y/y, after the increase posted in the third quarter. This took place amid the deteriorating global price environment and tougher restrictions,” the CBR noted.

In the fourth quarter the current account surplus decreased to $31bn versus $47bn for the same period a year earlier.

“This happened mainly due to a reduction in exports due to a less favourable price environment on the world market and tightening restrictions,” the CBR said. “Decreasing pressure on exports was also exerted by weakening demand due to expectations of a slowdown in global economic growth.”

Despite the fall in the last quarter of last year, the CBR pointed out that the overall result for 2022 was good. The current account surplus hit an all-time high of $227bn, almost double the already record high a year earlier of $122bn.

The record result was driven by the rise in the value of exports of goods and services, up 14% y/y to $78bn, an all-time high amid high global commodity prices.

The current account surplus in 2022 also increased due to the contraction of imports, which were down by 9% y/y to $34bn.

The CBR highlighted that the oil price cap scheme introduced on December 5 was a major factor in the dynamics of the balance of payments after exports and the price of oil plunged in December, causing the federal budget to end the year with a budget deficit of 2.3% of GDP for 2022.

The value of exports of goods and services decreased by 15% y/y in the fourth quarter compared with 4% y/y in the third quarter.

“This is due to the deterioration in the dynamics of world energy prices and the weakening of demand due to fears of a recession in the global economy,” the CBR said.

Brent oil price growth slowed to 11% y/y in 4Q22 compared with 36% y/y gain in the third quarter and a 64% y/y gain in the second quarter of the year.

“The situation with Russian oil was even more unfavourable. The price of Urals fell by 20% y/y to $63/bbl on average in 4Q22 compared to a 4% y/y gain in 3Q22. At the same time in 4Q22 the Urals discount to Brent widened to 29%.

“Moreover, in the fourth quarter, the growth of world prices for gas and coal slowed down, while prices for many metals decreased. In addition, the embargo and the EU price ceiling on Russian oil limited the physical volume of exports. The EU ban on the import of coal, a number of iron and steel products from Russia, as well as other restrictions, continued to constrain exports,” the CBR said.

Oil

According to Eurostat, the decline in the physical volume of supplies of oil and petroleum products from Russia to the EU accelerated to 30% y/y in October (3Q22: -23% y/y). Its volume fell to 2.3mn bpd in October, i.e. by 1.0mn bpd y/y, including 0.7mn bpd y/y due to oil.

“The worsening dynamics in the fourth quarter [are] due to the EU embargo. The ban on oil imports to the EU from Russia was introduced as early as the sixth round of sanctions in June. At the same time, until December 5, it did not apply to oil supplies under contracts concluded before June 4 and under one-time transactions with a short-term supply,” the CBR said. “After December 5, 2022, embargo exemptions are provided for a much smaller volume of shipments. As a result, in December, offshore oil supplies from Russia to Northern Europe ceased, and to Southern Europe fell to 0.2mn bpd. At the end of the year, such deliveries remained mainly to Bulgaria, which received relief from the embargo.”

Russia's oil exports were also affected by the ceiling on Russian oil prices effective December 5. The G7 countries, the EU and Australia introduced it at $60/bbl.

Companies from the participating states of this initiative are prohibited from providing services for the transportation of Russian oil by sea to third countries, as well as services for its insurance, brokerage, technical assistance and financing of operations.

At the same time, the restrictions do not apply if oil is bought at a price not higher than the established ceiling. These restrictions in December slowed down the reorientation of supplies from Russia to Asian countries. At the same time, the effect of the EU restrictions in December could have been overestimated, as one-time short-term factors were also in play.

Gas

In 4Q22 the decline in the physical volume of Russian gas exports to non-CIS countries intensified, rising to 64% y/y against a 3Q22 slump of 61% y/y.

The absence of gas supplies to the EU through the Nord Stream 1 pipeline, which ceased at the end of August, was fully manifested in the results. At the same time, in 4Q22, gas was still exported to Europe through Ukraine and via the TurkStream pipeline, so there was some revenues coming in from gas exports to Europe.

The reduction in supplies to the EU was partly compensated for the increase in exports to China via the Power of Siberia gas pipeline in excess of contractual obligations. In December, the Kovykta-Chayanda section of the Power of Siberia gas pipeline was brought into operation, increasing Chinese deliveries. This pipeline is connected the Kovykta field, the largest in terms of gas reserves in Eastern Russia, and potentially can raise gas exports to China further in 2023.

“At the same time, in the conditions of a mild winter and high stocks in the EU, the price of gas in Europe, an important market for Russia, decreased from $2,281 per thousand cubic metres in the third quarter to $1,400 per thousand cubic metres on average in the fourth quarter.

“In the fourth quarter of 2022, it was more than three times higher than the average for the fourth quarter over the previous five years. Thus world and export gas prices remained at a high level,” the CBR said.

Non-oil export of goods and services

There was a redirection of non-oil and gas exports of a number of goods from European to Asian markets. At the same time, it was held back by weakening demand due to expectations of a global slowdown as a result of the polycrisis.

According to Eurostat, the volume of coal supplies from Russia to the EU in the fourth quarter fell to zero due to a complete ban on its import to the EU from August 10, the CBR said. “At the same time, demand for Russian coal increased from Asian countries and Turkey, attracted by discounts.”

The drop in the physical volume of ferrous metals supplies to the EU from Russia increased to 68% y/y in October (vs 3Q22 -60% y/y), according to Eurostat.

“At the same time, the contraction of exports to the EU was completely compensated due to the reorientation of supplies to other states,” the CBR said. “The export of services, especially transport, in the fourth quarter of 2022 continued to be constrained by a decrease in the physical volume of deliveries of goods, the closure of airspace, restrictions in the field of maritime and road transport.”

Import of goods and services

The value of imports of goods and services continued to recover in 4Q22. The contraction narrowed to 9% y/y (vs 3Q22 -13% y/y).

“The dynamics improved due to the replacement of the dropped supplies from the EU through the expansion of imports from other “friendly” countries.

The volume of deliveries of goods to Russia by value based on World Bank from the EU almost halved y/y in October, mainly due to machinery, equipment and vehicle import declines. At the same time, the value of deliveries to Russia from China grew by more than a quarter y/y in October-November. Those from Turkey also almost doubled y/y in terms of the value of deliveries of goods to Russia in October-November.

Increased support for the import of goods through the mechanism of parallel imports grew. In October, the list of goods for parallel import was expanded. Alcoholic and non-alcoholic drinks, a number of trademarks of chemical industry products, electrical equipment, measuring instruments, and so on were added to the list, the CBR reports.

“According to the head of the FCS of Russia V.I. Bulavin, since the beginning of the parallel import mechanism (since May), goods with a volume of 2.4mn tonnes worth more than $20bn have been imported, primarily cars, machine tools, equipment, production lines,” the CBR said. “A significant volume of goods imported through parallel imports fell on goods for everyday use, clothing and perfumes.”

The recovery of imports was also facilitated by the preservation of a stronger ruble compared to the same period in 2021, which made these imports much cheaper for Russians. The real effective ruble exchange rate rose by 33% y/y in 4Q22 against a gain of 46% y/y in 3Q22.

“At the same time, unilateral restrictive measures by individual states and the withdrawal of foreign companies from the Russian market, as well as problems with payments and logistics, continued to exert downward pressure on imports,” the CBR reports.

Current account balance

The positive balance of the financial account in the fourth quarter of 2022 was $30bn. It was noticeably lower than in the previous quarter ($45bn) as well as in the fourth quarter of 2021 ($48bn).

Net lending to the rest of the world was carried out mainly in the form of an accelerated decline in external liabilities, which were down by $23bn in 4Q22 after a decrease of $3bn in 3Q 2022. In the fourth quarter of 2021, there was a net increase in foreign liabilities by $3bn.

Foreign asset growth was $7bn in 4Q22 (vs 4Q21 of $51bn). Overall, in 2022, the positive financial account balance was $223bn (vs 2021: $122bn).

It was formed in 2022 both by an increase in foreign assets (+$107bn) and a reduction in foreign liabilities (-$116bn), including due to the withdrawal of non-residents from the capital of Russian companies and the repayment of foreign debt non-financial enterprises.

The volume of international reserves for the fourth quarter of 2022 increased to $582bn as of January 1, 2023 (as of October 1, 2022: $541bn). The change is due to the revaluation of foreign exchange assets and gold when the US dollar weakens on the world market.

 

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