Current account in surplus in 3Q, but it is artificially small

RUSSIA ECONOMICS - In Brief 09 Oct 2020 by Alexander Kudrin

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The Central bank reported that according to its preliminary estimate, the current account surplus reached $24.1 bn in 9m20, while in 3Q20, it was $2.5 bn. As according to the revised numbers, the current account balance temporarily turned into a deficit in 2Q20 (which was -0.5 bn), the ruble since then became too dependent on the FX interventions from the Minfin/CBR duo that supported the currency. These interventions, which are stipulated by the fiscal rule, so that in the case of low oil prices, reserves accumulated previously, have to be spent not to allow the ruble to fall too much, look excessive and unnecessary. They also could have hurt economic growth.As it follows from the CBR data, exports were down in 9m20 by 23.6% y-o-y. In 2Q20 and 3Q20 combined, this contraction close to 30% y-o-y. At the same time, imports were down just by around 7% to 8% y-o-y both in 9m20 and in 3Q20. GDP was down 8% y-o-y in 2Q20 and 3.4% in 1H20. The output of the five basic sectors (a monthly proxy for GDP) was down by 4.4% y-o-y in 8m20.Meanwhile, in 2015 when Russia was affected by multiple shocks, such as sanctions and low oil prices, and no artificial support to the ruble was provided, the Russian GDP contracted by a mere 2.0%, while exports and imports fell by 31.3% and 37.3% respectively. The exchange rate, as a kind of buffer, has to absorb the shocks and enable import to shrink more than exports, opening an opportunity for domestic produces to fill in some niches both domestically and internationally. Trade surplus and the current account remained sufficiently positive during the year of 2015, and that the ruble naturally bounced back.These days, CBR/Minfin’s efforts to sup...