Page 49 - RusRPTAug23

· a drop in the external liabilities экономики in 2023 Q1 was offset by its growth in Q2, including as a result of the accrual of dividends by Russian companies in favor of non-residents.
The Bank of Russia recently released data on the balance of payments for June, revealing a negative balance of $1.4bn. This is the first time since August 2020, during the pandemic, that the balance has turned negative.
The Central Bank has attributed the weakening of the ruble to a decline in export earnings and seasonal factors such as dividend payments to non-residents. The assessment of the balance of payments supports this analysis. The trade balance decreased from $10.4bn in May to $6.4bn, primarily due to a drop in exports from $36.8bn to $32.5bn. Income payable, which includes dividends, increased by $3.1bn to $8.3bn.
While merchandise trade flows remain relatively stable and imports are close to the 2021 average, the decrease in exports alone should not have caused significant fluctuations in the exchange rate from the second half of June, according to the Hard Figures economic channel.
Payments to non-residents mostly involve paper transactions and settle on special type C accounts, which means they do not result in an actual outflow of foreign exchange, explains Dmitry Polevoy, investment director at Loko-invest. The seasonally adjusted balance of dividends remains positive at around $1.8bn. It is difficult to accurately estimate the role of personal transfers abroad in the deficit of the primary and secondary income balance.
The Central Bank's Financial Markets Risk Review sheds light on the situation. It suggests that the weakening of the ruble is more likely due to foreign exchange flows, both related and unrelated to dividends and foreign trade.
The review highlights that exporters' sales of foreign exchange earnings decreased from $9.1bn in May to $7bn, with companies selling 90% of their proceeds instead of holding the currency. The share of "toxic" currencies in foreign trade has decreased, while the share of the ruble and yuan has increased. This weak inflow of export currency to the domestic market appears to be a contributing factor.
Furthermore, large transactions were observed in the foreign exchange market, with the share of the largest buyer growing from 10% to 40% since the beginning of June. Corporate clients of credit institutions have started converting their foreign currency loans into rubles, leading credit institutions to buy foreign currency to balance their open foreign exchange positions. This increased demand for foreign currency has put additional pressure on the ruble.
49 RUSSIA Country Report August 2023 www.intellinews.com