Page 13 - RusRPTFeb23

Bell said in a report, adding the volumes of sales of the yuan will be modest for the first months of this year.
According to Bloomberg chief economist Alexander Isakov, with an average price of Urals in 2023 of $50 per barrel and unchanged production volumes at around 9mn barrels a day, without selling foreign currency, the dollar exchange rate should be RUB75 to the dollar, but with the new mechanism it could strengthen 5–6% to RUB71 per dollar.
The CBR announced that it will begin selling foreign currency from the National Wealth Fund (NWF) in a move to compensate for lost oil and gas revenues due to sanctions. The funds will go to the budget, which ends 2022 with a 2.3% of GDP deficit – more or less as predicted by the Ministry of Finance (MinFin) in the first months after the start of the war in Ukraine.
The Russian budget has been heavily impacted by sanctions and the war. Gas deliveries to Europe have halved twice in the last two years and are expected to fall again this year from the circa 100bcm sent to Europe last year to around 60bcm this year. Likewise, oil exports fell heavily following the imposition of the Western embargo on December 5 and the discount on Russia’s Urals blend price compared to the benchmark Brent blend has blown out to around 50% in the last few weeks. Revenues from oil exports are expected to fall again when an EU ban on imports of oil products comes into effect on February 5.
Despite these setbacks, Russia’s budget deficit for this year is expected to expand from 2% of GDP to around 3%, an amount that the Ministry of Finance (MinFin) can cover from reserves in the National Welfare Fund (NWF), issuing and estimated $51bn of new domestic debt and levying special taxes on Russia’s biggest state-owned enterprises.
The decision to sell yuan to the market will be an extra plank in MinFin’s efforts to find new sources of funding the war-budget and a way to tap the massive amount of foreign exchange Russia has earned in 2022 after the current account surplus jumped to $270bn thanks to the explosion of gas prices last summer, as well as elevated commodity prices as a result of the war.
To minimise the impact on the exchange rates yuan sales will be dribbled into the market with RUB3.2bn rubles being sold every trading day until between January 13 and February 6.
Selling yuan is part of revisions to the budget rule that Vladimir Putin announced in November. The rule has been in place for years and sterilises excess oil and gas revenues by syphoning off anything above a pre-set threshold oil price to the NWF to prevent “the Dutch disease” of an appreciating currency due to large raw materials export revenues distorting the exchange rate.
The cut-off threshold for the rule has been changed from oil prices of $44.2 in 2022 or more and is now predicated directly on the oil and gas revenues the state earns, set at RUB8 trillion annually for the next three years.
If oil and gas revenues are less than this amount, currency will be sold from the NWF. In the event of an excess, currency will be bought.
13 RUSSIA Country Report February 2023 www.intellinews.com