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September 7, 2018 www.intellinews.com I Page 6
ritory of the former Soviet Union (FSU).
Russia has been in the frontline too in recent weeks after its currency fell some 17% since the start of this year in parallel with the Turkish lira’s tumble. However, while the two countries are con- nected through trade and banking, the fall of the ruble has more to do with the threat of “crushing” sanctions being imposed on Russia this autumn by the US.
The ruble has sold off to levels not seen since 2016 and growth forecasts have already been cut. However, analysts say that the drop in the ruble will be limited and the government can weather the storm thanks to its healthy currency account surplus and large hard currency reserves.
Russia’s current account surplus increased to $60.7bn in 7M18, versus $53.2bn in the first half of 2018, according to preliminary data from the CBR. The trade surplus also rose to $104bn from $90.6bn, thanks to higher than expected oil prices.
At the same time Russia’s gross international reserves (GIR) have been rising and were just shy of $460bn as of the start of August – more than enough to cover 17 months of imports, when economists say the minimum needed to ensure the stability of the currency is three months. And the Russian budget is on course to run a surplus of as much as 2% of GDP after several years of deficits.
With these reserves the fall of the ruble will be limited, but even the 17% fall spills over into the Caucuses and Central Asia.
Georgia
Thanks to their close ties, the fall of the lira has had the most noticeable effect on the Georgian lari and the Azerbaijani manat, but in Georgia’s case the strength of the economy has limited the damage.
“Prudent macroeconomic policy-making and strong growth in external earnings helped the
GEL remain immune to the sell-off in regional currencies until early August 2018. However, the TRY’s collapse on August 10 affected the GEL through the expectations channel when the cur- rency lost 3.9% in one day against the dollar trad- ing at GEL2.57. Taking into account the ongoing currency crisis in Turkey and sour global senti- ment in EM currencies, we expect the USD/GEL rate to weaken to around GEL2.7 compared to our previous GEL2.6 projection for end-2018,” Tbilisi- based investment bank Galt & Taggart said in an August 13 update on the impact of the crisis.
The problem for all these countries is the lira has fallen so far and so fast that it has altered the terms of trade, forcing the local currencies to adjust as their exports to Turkey become much more expen- sive and imports from Turkey much cheaper. The same is true for their relations with Russia, another key trading partner, where the drop of the ruble has had the same, but less extreme, effect. The double whammy of these currency shifts is causing lim- ited devaluations across the entire region.
“The gradual adjustment in the USD/GEL rate is likely a necessary correction to rectify the GEL’s real gains against the TRY and RUB – Georgia’s two largest trading partners. We also believe that depending on FDI/tourism inflows and import per- formance, pressure on the GEL might subside in August-September 2018,” Galt & Taggart added.
The booming tourism industry in Georgia will allay the devaluation pressure somewhat as an inde- pendent source of foreign exchange earnings, but this support will wear off in the next month as the tourist season comes to an end. However, Georgia is unlikely to feel as much pain as Turkey: in the deep devaluations suffered by Russia in 2014 and Ukraine in 2015, the currencies’ fall was cush- ioned by the almost complete collapse of imports that took the pressure off the current account and so braked the fall of the currency. It remains to
be seen what a de facto leap in import prices will have on imports, and to what extent the cheaper exports will rise, but similar forces will be at work to cushion the pain.