Balance of payments trends shift due to pandemic
In 2020 Q1, the pandemic and related restrictive measures triggered an unprecedented drop in global oil consumption with oil prices hitting their multi-year lows. Combined with generally weaker external demand affected by a looming global economic recession, it caused exports and the current account surplus to shrink substantially, reports the quarterly issue of the information and analytical commentary ‘Russia’s Balance of Payments’.1
In the second half of the quarter, non-residents’ purchases of Russian government bonds in the secondary market were followed by their net sales as global investors’ risk appetite fell due to the spreading coronavirus. In this context, foreign direct investment in the Russian non-bank private sector went down to almost zero in 2020 Q1.
However, the floating exchange rate facilitated the balance of payments’ adaptation to the oil price downturn and the outflow of portfolio investment. Imports started to decline due to the weakening of the ruble and anti-coronavirus restrictions which subdued travel services imports. During the next months, imports will experience additional constraints placed by the lockdown measures in Russia that cause people to buy fewer durable goods, and disruptions in supplies as production in foreign countries stopped.
The balance of payments’ adjustment was helped by preventive foreign currency sales in March under the fiscal rule with account of actual oil prices. Another stabilising factor was higher supply of foreign currency in the domestic market on the part of the Bank of Russia purchased by it from the National Wealth Fund as part of the acquisition of Sberbank shares by the Russian Government.
1The commentary on the balance of payments includes a preliminary estimate of its indicators in 2020 Q1 and actual data on the international reserves.
