Russia’s international reserves up despite crisis
The Bank of Russia’s spending on the coronavirus crisis has been fairly moderate so far. Moscow even increased its money cushion in the first five months of 2020 thanks to the revaluation of gold, which totals 22% of Russia’s reserves.
Russia managed to increase its hard currency reserves by $3,8bn between January 1 and May 31, says bneIntelliNews adding that the current slowdown is the country’s cheapest crisis ever. Last year, the Central Bank managed to increase its reserves by more than $90,2bn continuing to accumulate extra cash in 2020, although at a lot slower pace. So far, the regulator has spent less than $7bn from its collective reserves on dealing with the aftermath of this year’s economic shocks.
By comparison, Russia spent $90bn of $454bn in 2014 to deal with the global oil price shock, which halved both the value of the ruble and oil prices. In the first nine months following the 2008 global financial crisis, the country spent $212,8bn of its $596-bn reserves to support the ruble and bolster the economy. As for 1998, when Russia’s financial sector entirely went into meltdown, Moscow had a mere $8bn in hard currency reserves in the aftermath.
This time, the Central Bank’s mere $7-bn spending has been more than offset by the appreciation of gold the regulator holds as part of its cash reserves. As of March 2020, Russia accumulated 2,299 tonnes of the yellow metal valued at $127,6bn at the beginning of June, which is $17bn more than at the start of the year. The Central Bank has been actively buying gold since 2007 to replace its dollar-denominated assets. Monetary gold currently accounts for 22% of Russia’s total reserves.
Moreover, an observed recovery of oil prices means that Russia can probably go back to accumulating reserve cash by more traditional means. Crude prices have recovered remarkably fast after the latest OPEC+ deal was agreed in April, reaching the Kremlin’s ‘comfort zone’ level of above $40 per barrel. At $42 per barrel, Russia will start accumulating money in the National Wealth Fund under the so-called budget rule. The fund itself is supposed to cover any budget deficit during a crisis, and the country’s Ministry of Finance is going to tap it to cover an anticipated deficit of 3 trillion rubles this year.
The crisis is still going to be painful for the national economy. According to Russia’s Federal State Statistics Service, basic sectors were down by 10% year on year in April, while consumer-oriented sectors decreased by a third or more. It is expected that Moscow will run 0,5% of GDP deficit instead of a 2% surplus this year. The Kremlin’s national action plan for economic growth recovery envisages some $72,8bn of the spending, or 7,8% of GDP. However, part of this money will be redirected from the National Priority Projects, which are already included in the current budget.