Page 16 - RusRPTAug23

April-early May 2023 when the basket value moved from RUB85/BKT to RUB80/BKT, but this happened only for a brief period.
Weak ruble benefits exporters and the budget ... It is quite obvious that a lower ruble rate is quite beneficial for Russian exporters and the budget (the latter receives payments of export duties in nominal rubles although such duties are set in dollars). A weaker currency helps the government to compensate for losses to the budget that are caused by lower prices and shrinking volumes of exports and trade earnings. Together with other initiatives – such as the introduction of higher (or one-off) taxes – the government attempts to significantly improve its fiscal situation. That, in turn, should allow it to skip using its National Welfare Fund as the main source for funding the budget deficit.
... but also leads to an increase in inflationary pressures. Such a policy does come with an important side effect: it leads to a material rise in inflationary pressures. But that is a problem that the government and Kremlin have left for the Central Bank to resolve. In other words, the forthcoming July hike in the CBR’s official rate – if it materializes, as we expect – will also come as a logical result of the steps undertaken by the Cabinet and aimed at protecting the budget and state FX reserves.
Russia sees a growing deficit of fully convertible currencies. One other important factor that has added to the weakness in the ruble derives from the transformed structure of the Russian domestic FX market. The collapse in Russia’s energy and commodity trade with the West and the introduction of Western sanctions against Russia’s banking sector has effectively cut off Russia from a major part of financial flows in $and EUR. Instead, Russia has switched to payments in alternative currencies, mostly CNY and INR. However, as these currencies have limited convertibility, access to export earnings in these currencies is often limited. As a result, there has been a dramatic decline in volumes of FX traded on the domestic market – and this could not but increase negative pressures on the dynamic of the ruble’s exchange rate.
2.1 German industry experiencing major investment outflow due to polycrisis.
German chemical concerns are investing in modern plants and green technology anywhere but Europe and Germany, causing concern among the country's largest trade unions, the FT reported.
"Investments in new plants and new technologies are flooding out of Germany," said Michael Vassiliadis, chair of Germany's union for the chemical and energy industries IG BCE, adding that the trend had been accelerated "since the problem with energy."
The main benefactors, Vassiliadis said, were China and the US, which were offering companies "full packages" that on top of tax incentives include access to green energy and regulatory fast-tracking.
16 RUSSIA Country Report August 2023 www.intellinews.com