Russia is trying to save the budget. It falls into a vicious circle
Russia’s finance ministry and central bank said last week that they would resume foreign exchange interventions for the first time in nearly a year, selling 54.5 billion rubles (about $793 million) in yuan. The sale started on January 13 and will run for three weeks.
Russia is using the $186.5 billion rainy day fund as of December 1 to finance its growing budget deficit and stabilize the economy in the face of increasingly tougher Western sanctions on Russian energy sales.
However, analysts say the sale of foreign currency will cause the ruble to strengthen, further reducing Russia’s ruble earnings as oil and gas export revenues are largely based on global dollar reference prices.
This process could result in a decline in export earnings, requiring more foreign currency sales and leading to an even stronger ruble, which will deepen the budget hole.
There is a risk that Russia’s revenues from energy exports will fall even further in February and March, after the next stage of G7 price reductions begins on February 5 – for petroleum products.
The income gap may be 2-3 times larger than the deficit of 54.5 billion rubles in January, CentroCreditBank economist Yevgeny Suvorov estimates.
Russia’s budget for this year is based on the Urals price of about $70.10. per barrel, although the main Russian blend currently costs around $50. per barrel.
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