Russia could burn all
its reserves in a year
Russia’s Prime Minister Vladimir Putin
gestures as he meets with members of the Valdai
international discussion group of experts in Krasnogorsk
outside Moscow November 11, 2011.
Russia’s foreign currency reserves slipped another $6.4
billion last week as the central bank and the Finance Ministry
continues the battle to prop up the ruble. If it continues at that rate, the $368.3
billion it has left will be all but gone by this time next
year.
The country’s reserves have fallen over $100 billion from
$469.9 billion in June last year as the collapse in global oil
prices sent Russia’s currency tumbling. Russia relies on oil
and gas revenues for around 10% of GDP and half of federal
budget revenues, so when the price falls, so does the economy.
Morgan Stanley estimates that “every $10 fall in the oil
price means a $32.4 billion fall in oil and gas exports, which
is equivalent to about 1.6% of GDP” and around a $19 billion
fall in government budget revenues.
In order to protect the country’s business from the collapse
in the value of the ruble, the central bank and the Finance
Ministry have been selling dollars and euros and buying up
rubles in order to prop up the latter’s price. While this
helped to stabilise the currency, the falls have already
thrown Russia’s banking sector into crisis and forced the
government to cut its budget by 10% this year.
As the Bank of
Russia told Russian news service TASS: “The reduction of
international reserves for the week by $ 6.4 billion, or 1.7%,
is a result of repo transactions in foreign currency and
reduced balances on the Russian Finance Ministry and with the
Bank of Russia, as well as the negative balance of foreign
exchange and market revaluation.”
If the falls continue at around $6 billion a week they will
be all but exhausted by this time next year. However, at least
one key threshold — sufficient reserves to cover at least six
months of imports in case of emergency — has already been
breached.
Russia’s former finance minister and current chairman of the
Committee of Civil Initiatives Alexei Kudrin wrote a blog in
the daily newspaper Kommersant last year, available
reserves could barely cover six months of imports at current
prices.
“Six months of Russia’s imports
are worth approximately half of the current level of
international reserves, which are valued at around
$454 billion. If we subtract the reserves used to
insure the government’s budget, the remaining value of
reserves only slightly exceed the amount needed to pay for six
months of imports.”
Some analysts say that six months is the critical level to
insure the Russian population against the possibility of
severe hardship in case the crisis deepens and the Russians
are deprived of foreign goods. (Russia imports a large amount
of staples including butter, cheese, and meat.) S&P think
that this level may already have been breached and indeed
reserves are likely to continue to fall for the next few
years.
The Russia crisis is not over yet.