Page 53 - RusRPTNov20

Reluctance to travel abroad supports BoP in 3Q20. ​The 3Q20 data for Russia’s balance of payments (BoP) broadly exhibited the same trends as in 2Q20. External trade revenue improved due to a smaller decline in oil prices, but the shock to travel demand (seasonally strongest in 3Q20) counterbalanced lower export volumes.
Elevated capital outflows are the result of heightened geopolitical risks over the past three months, keeping the ruble weak. Analysts do not rule out the RUB/$rate remaining weak (close to 80) in October and November due to global economic and geopolitical risks, although they doubt that this weakness will last until YE20 or run into 1Q21, as the ruble could rebound to “fair” levels by then. However, an insufficient global policy response to a second round of lockdowns could see the “fair” RUB/$level move lower vs. its current rate of 72.1.
CBR published its first estimate of Russia’s balance of payments (BoP) for 3Q20. Trade balances remained resilient as demand for imports remained as depressed as in 2Q20. Capital outflows remained elevated as well.
On the trade side, the CA balance improved to $2.5bn in 3Q20 from a deficit of $500mn in 2Q20, deteriorating on a y/y basis from $10.7bn in 3Q19.
On the financial side, net private capital outflows remained high compared to CA at $7.8bn vs. $10.5bn in 2Q20. The non-financial sector repaid its foreign liabilities for the most part, resulting in an outflow of $12.9bn from the non-financial sector. This usually happens in an adverse environment, when companies postpone or are even unable to refinance their external debts.
The banking sector saw an inflow of $5.1bn thanks to higher sales of FX assets vs. the redeeming of its liabilities. The public sector supported FX liquidity with inflows of $3.2bn mainly on the back of CBR’s higher liabilities. As a result, the reserve position showed net spending at $2.3bn, which is lower than 2Q20’s $12.9bn.
As was the case in 2Q20, the shock to travel demand, which is seasonally strongest in 3Q20, counterbalanced lower export proceeds (lower export volumes and seasonality offset the improvement in oil prices from $33.5/bbl in 2Q20 to $43.3/bbl in 3Q20).
Despite the most popular travel destinations being open, a weaker exchange rate and epidemiological concerns weighed on outbound travel.
Elevated capital outflows are the result of heightened geopolitical risks over the past three months. According to MOEX data, non-residents (including Russian-based subsidiaries of global banks) sold more than $1.6bn in Russian equities in August and September. OFZ sales were about $2.2bn, with a major
53 ​RUSSIA Country Report​ November 2020 www.intellinews.com