Page 6 - RusRPTJan23

1.0 Executive summary
The Russian economy ended 2022 in a far better state than many had anticipated in the spring following the invasion of Ukraine and ensuing Western sanctions.
The fall in GDP has only amounted to about 3% or even less, and the US dollar is still trading at less than RUB65. Even the Western ban on high-tech imports, although challenging, has proved manageable as imports of semiconductors from China in particular soared in the second half of the year.
Trade was down by 15% y/y and retail sales fell 10% y/y, but a doubling of investment by the state held economic growth up as the Kremlin puts the economy on a war footing.
None of this means that Russia’s economy is out of the woods: many risks still remain and several serious problems caused by the sanctions were starting to make themselves felt as the year wound down.
Oil and gas revenues started to fall sharply in November. Oil and gas revenues contributed RUB866bn ($13bn) to the state budget — down 2.1% y/y. This is not a critical fall in revenues. However, in reality, almost half of that sum ($6.4bn) came from a one-off payment of Gazprom’s mineral extraction taxes. Without that money, oil and gas income was down 48.9% compared with 2021.
There are two possible reasons for this. First is the near-total cessation of pipeline gas exports to Gazprom’s lucrative European market following the closure and subsequent explosions on the Nord Stream gas pipeline. Second is the fall in prices for Russian oil, which led to November’s oil revenues being down 25.4% y/y.
Russia’s Finance Ministry is printing money to cover this deficit. The federal budget ended the year with about a 2% of GDP deficit but reserves and a flurry of Russian Finance Ministry’s OFZ treasury bill issues in the last quarter covered the shortfall.
Part of the hole is filled using the National Welfare Fund, but this alone will not be enough. Relying solely on the NWF would mean the liquid part of that fund would run out by 2025 according to the projected budget deficit, Central Bank analyst say.
This fall, the Finance Ministry turned to large-scale borrowing in the federal loan bond market to cover the rest of the deficit. These internal loans raised
6 RUSSIA Country Report January 2023 www.intellinews.com