Page 17 - IFR Opportunities in Russian capital markets

CHAPTER 01
ifrintelligence reports/Opportunities in: Russian Capital Markets
Figure 1.6: World’s largest economies, 2006–07
15,000 12,000 9,000 6,000 3,000 0
50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000
5,000 0
GDP, current prices, US$bn
GDP per capita based on purchasing-power-parity (PPP)*
2006 2007
*PPP (current international dollars): a theory stating that over the long term the
exchange rate between two currencies adjusts according to currencies’ relative purchasing power. Source: IMF forecasts
Current financial situation
International reserves and debt
High oil prices have been a massive boon for Russia and allowed the state to build up the third largest currency reserves in the world – equivalent to over a year's imports, where 3–4 months of import cover is the norm (see Figure 1.7).
In the summer of 1998, Russia's gross international reserves (GIR – hard currency and gold) fell to a mere US$9.1bn. By the end of 2006 Russia's GIR topped US$300bn. Ratings agency Fitch estimates Russia's GIR will reach US$370bn by the end of 2007.
And the government has shown great prudence with its windfall oil money. Rather than ploughing it into various white elephant projects, the state set up the Stabilisation Fund on 1 January 2004. This accumulates the federal budget's extra revenues from progressive oil export taxes on Urals blend oil prices exceeding US$27 per barrel.
The Stabilisation Fund has followed the same path as Russia’s GIR, as shown in Figure 1.8, and had reached US$87.5bn as of 1 January 2007 and crossed the US$100bn mark by the start of February 2007. According to Fitch, it is expected to rise to US$135bn by the end of 2007.
This fund is ring-fenced from Duma deputies who can only tap it to subsidise the budget when oil prices fall below US$27. Once the fund exceeds RUB500bn (US$19.2bn) excess funds become available to the Ministry of Finance and can be used exclusively for paying down sovereign debt.
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US Japan Germany China
US Japan Germany China
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UK France Italy Canada Spain Russia Brazil India Korea Mexico