Amid the ongoing sanctions and amid the US and its allies’ efforts to tighten them over the invasion of Ukraine, Russia has managed to stash roughly one-third of its $227 billion commodity export profits in offshore accounts.
The current-account surplus, which reached a record level, has provided a lifeline for the Kremlin, but the assets accumulated abroad could become a target for Ukraine’s supporters.
Bloomberg Economics estimates that this includes holdings of cash, real estate, and investments in foreign affiliates, totalling around $80 billion. These shadow reserves are a result of Russia’s current-account surplus, which is the difference between its exports and imports and has been at a record high since its attack on Ukraine in February 2022, enabling the Kremlin to maintain its financial stability.
Maria Shagina, an economist at the International Institute for Strategic Studies based in the UK, pointed out that Russia was able to amass one of the biggest current-account surpluses in its history due to Europe’s tardiness in targeting its energy sector. This has effectively nullified the impact of the central bank assets freeze in March 2022, as Russia has the capability to recover its losses.
The accumulation of fresh earnings overseas could make them vulnerable to Russia’s enemies, particularly if the state manages the funds. Many of Russia’s largest exporters that helped generate last year’s substantial earnings have government shareholders, but it is becoming increasingly mysterious where the money has gone and who has authority over it.
Russia amassed roughly 5% of its gross domestic product in international assets last year, a figure similar to the average between 2009 and 2013. During both periods, oil prices were high, and the central bank had limited foreign-exchange intervention.
The issue of where these assets are and who controls them is becoming increasingly mysterious, especially as Ukraine’s backers consider using frozen Russian assets to help rebuild the country. For the government, these assets are a resource that can be used to impose extraordinary levies on exporters.
However, as the EU decreases its reliance on Russian energy supplies, these assets may become more vulnerable to sanctions. The current-account surplus has also decreased due to lower commodity prices and new restrictions on oil exports. Even if foreign governments are able to identify new Russian funds abroad and link them to the state, the amount is likely to be smaller than official estimates.
According to the central bank, Russia’s net foreign asset acquisition was $107 billion last year. However, Bloomberg Economics estimates that the figure is probably overstated by approximately $21 billion. To calculate this figure, Bloomberg Economics adjusted for tourism spending, the purchase of an unregistered fleet of oil tankers, and outflows associated with Russians opening accounts at overseas banks. Bank transfers can distort the data because they appear as an increase in foreign assets, but they actually represent a redirection of imports.
Sergei Guriev, an economist who once advised the Russian government but later fled to Paris, where he now serves as the rector of Sciences Po, suggested that Russia may have accumulated undisclosed reserves. “The crucial question is whether these reserves will be sufficient to cover the budget deficit in 2023,” Guriev said.
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