Page 48 - RusRPTMay19

which broke through the important $70 mark in the last weeks, has helped, but depressed imports due to the stagnation of real incomes has also contributed to the strong surplus.In all Russia is running a triple surplus again of federal budget, trade and current account. GIR reached an all time high of $597.5bn on August 8, 2008.
The Central Bank of Russia (CBR) is slip flopping over the need to build up gross international reserves (GIR) to $500bn. In the latest statements the bank said it is necessary to increase FX and gold reserves even more given the persisting sanction risks and current economic structure, deputy head of the CBR Sergey Shvetsov told the press on April 3.
The volume of FX/gold reserves reached $487bn as of March 22 – bring reserves back to the same level they were before the sanctions regime started following Russia’s annexation of the Crimea in 2014 – increasing by $4.6bn week-on-week on positive currency revaluation, and FX purchases off the market.
Shvetsov did not provide any guidance on the target amount of reserves, suggesting waiting for quarterly or annual reports of the CBR for estimates. However, separately CBR governor Elvira Nabiullina has said in the past the CBR has an informal goal to get reserves back above $500bn.
If the CBR is intending to increase reserves again then that is another about face in policy, as more recently in October 2018 another deputy head of the regulator Xenia Yudaeva said that the goal of increasing Russia’s gross international reserves (GIR) to $500bn is not longer a priority for the central bank.
The $500bn target was set by the CBR in 2015, as the currency market stabilised after extreme volatility of 2014, and was repeated by Nabiullina until the spring of 2018. Bloomberg claimed back in 2015 that setting a FX/gold target of $500bn was a direct “recommendation” by President Vladimir Putin, who has long been following a “fiscal fortress” policy, but has been resisted by the central bankers.
But in September 2018 along with front-loading the key interest rate by 25bp to 7.5% the CBR halted purchases of foreign currency off the market as ruble came under increased pressure from possible toughening of sanctions.
Recent ruble and oil price stability now allows the CBR to top up the reserves without risking a disturbance in the currency market. Even without further active accumulation the FX/gold reserves already fully covers Russia's public and private external debt with cash that stands at about $470bn. Russia’s external debt is currently at its lowest since mid-2000s.
The Russian government is looking to raise RUB190bn ($3bn) to pay excise duty netbacks to oil companies and could tap into the RUB3.9 trillion National Welfare Fund (NWF), Vedomosti daily reported on April 1 citing unnamed sources familiar with internal government memos. Russia has effectively frozen domestic fuel prices and set minimum supplies quotas for motor fuels for the domestic market, in order to control fuel prices on over- regulated and mismanages upstream market. The government now owns RUB190bn losses to oil companies in compensations on losses caused by the move. Apart from tapping into the NWF the government also considers increasing the excise duties for oil and other heavy refining by-products, as well as increasing the Mineral Extraction Tax (MET), the sources told Vedomosti. Currently only RUB30bn of the compensations are raised from reshuffling excise duties on oil products. Reportedly, using NWF to deal with oil taxation reform gone bad is fiercely opposed by the Finance Ministry, while there is also no legal basis to use the fund for such purposes..
48 RUSSIA Country Report May 2019 www.intellinews.com