Breathe
By Stephanie Henaro
Putin can no longer afford it. The fall in the value of the ruble in recent weeks is a symptom of something more serious. Russia's finances are not doing well.
Information shared in Moscow on Tuesday confirms that in the first half of this year the Eurasian nation only had a surplus of 20 billion dollars. While at this point last year, the amount was around 227 billion dollars and although the Central Bank of Russia is optimistic that by the end of the year it could reach 66 billion dollars, the difference is notorious.
One of the reasons that can explain this financial decline is that gas and oil prices are not the same as in 2022. Because it should be remembered that as soon as the war in Ukraine started, prices went through the roof and the barrel of oil even reached close to $120.
Oil and gas are vital for the finances of the Russian Federation and the financing of the war. It is therefore important to note, that compared to the same period last year, they are 50% lower.
It seems that the trade boycott has begun to have an effect, and imports are also becoming more expensive. Because the Russian supply chain has also been affected and the logistical implications should not be overlooked.
The deteriorating trade balance has put the ruble under notorious stress after being one of last year's winners, even after the invasion, and today it has devalued by 20%, with Yevgeny Progozhin being responsible for the latest drop, even as he aborted his project of the march of justice in Moscow, much in the style of Alexei Navalny.
Sanctions and the fall in foreign direct investment have left the value of the ruble in the hands of current account flows, and this suggests that it still has room to depreciate further. Indeed, it is quite likely that without government intervention the country would have already entered an inflationary spiral.
Another aspect to be taken into account is the capital outflow that rebounded after the Wagner Group mutiny, because Russians continue to withdraw their savings. It is estimated that since March of last year to date, 45 billion dollars have left the country, and the government has had to cut its spending budget by 10%.
Finance Minister Anton Siluanov has stated that he plans to sell foreign currency reserves next month for an amount close to 35 billion rubles, after he had announced in June that he would do so for 75 billion rubles.
Russia has accumulated yuan and rupees significantly as a result of its trade activities with both countries in its own currency, avoiding the use of the dollar largely because it is no longer part of the SWIFT system either.
Although the Saudis have joined Russian efforts to increase the price of oil, they have not been successful, and the weakness of the global economy has kept them below $80 per barrel and this poses a difficult outlook for a Russia that needs to increase its revenues.
Last one to leave, turn off the light.
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