Russian merchandise export earnings in the first quarter of 2016 were down 34.3% y/y but this was somewhat offset by falling goods imports and lower net outflows for non-factor services and primary income items; nevertheless, the current-account surplus was cut by USD18.3 billion or 61% compared with a year earlier.
IHS perspective | |
Significance | The Russian current-account surplus in 2016 is destined by be a fraction of that in 2015 due to a dramatic reduction in earnings on goods exports. |
Implications | The impact on the external payments position is being moderated by a sharp reduction in net capital outflow from the private sector in 2016. |
Outlook | The impact on the first-quarter balance of payments of sliding merchandise exports will be the most drastic in the course of the year as global oil prices fell substantially during 2015. On the other hand, the pace of decline in import outlays, which significantly offset lower export earnings in 2015, has slowed and will slow further during this year due to base effects. |
The Central Bank of Russia has published a first estimate of developments in the country's balance of payments in the first quarter just days after the closing of that quarter. The current-account surplus for the first quarter of 2016 is put at USD11.7 billion, down from USD30.0 billion in the first quarter of 2015 for a reduction of USD18.3 billion or by 61.0%. The drop in the surplus on the current account was solely due to the narrowing of the merchandise trade surplus. Merchandise exports were down 34.3% year on year (y/y) in the first quarter. The sharpest decline came in refined petroleum products where export earnings were down 52.0% y/y. This was followed by the drop in earnings on exports of crude oil at 38.3% and the 30.7% decline for natural gas exports. Receipts from non-energy exports slid by a somewhat more moderate 22.7%. The drop in import outlays y/y, in contrast, was less than half that recorded for 2015 as a whole at 15.4%. As a result, the surplus on merchandise trade narrowed to USD21.6 billion from USD45.5 billion a year earlier, a decline of USD23.9 billion, far more than explaining the narrowing of the current-account surplus.
Estimated balance of payments for Russia in Q1 2016 (USD, bil.) | ||
Q1 2015 | Q1 2016 | |
Current-account balance | 30.0 | 11.7 |
Merchandise trade balance | 45.5 | 21.6 |
- Exports | 90.2 | 59.3 |
- Crude oil | 22.7 | 14.0 |
- Oil products | 20.0 | 9.6 |
- Natural gas | 11.4 | 7.9 |
- Other exports | 36.1 | 27.9 |
- Imports | 44.7 | 37.8 |
Non-factor services, net | -8.3 | -4.7 |
Primary income, net | -6.3 | -4.2 |
Secondary income, net | -1.0 | -0.9 |
Capital and financial account balance1,2 | 37.5 | 7.5 |
Change in reserve assets2 | -10.1 | 2.6 |
Errors and omissions | -2.6 | -1.7 |
1 This presentation (dubbed analytical by the CBR) does not include the change in reserve assets in the financial account. | ||
While the net result of goods trade in the first quarter was less favourable for Russia than the situation a year earlier, developments in other sub-accounts of the current account contributed positively to the surplus. In the case of non-factor services, a decline in receipts of USD2.2 billion was more than offset by a decline in outlays of USD5.7 billion. The result was a drop in the deficit on this account compared with a year earlier of USD3.6 billion. The reduction in receipts y/y was primarily in the category of other services while the decline in outlays was overwhelmingly realised in falling payments for transport services in conjunction with reduced goods imports. The deficit on primary income items narrowed in the first quarter of 2016 by USD2.1 billion compared with a year earlier as the decline in payments (dividends, interest and rents) was greater than the y/y decline in receipts. This was supplemented by a small y/y improvement in net compensation of employees. Turning to the capital and financial account, which in this so-called "analytical presentation" of the balance of payments does not include the change in reserve assets, there was a marked reduction in net capital outflow from Russia compared with a year earlier, reducing the balance from USD37.5 billion to only USD7.5 billion. All of this was achieved in the financial account balance and almost entirely on the change in financial obligations. In the first quarter of 2015, external obligations of Russian banks declined by USD24.5 billion while in the first quarter of 2016 this decline was a far more moderate USD8.0 billion. The same comparison for the non-financial private sector records a reduction in outstanding external loans of USD7.0 billion in the first quarter of 2015 compared with an increase of USD0.1 billion a year later. Additionally, incoming flow of foreign direct investment declined in the first quarter of 2016 compared with the first quarter of 2015 from USD2.8 billion to just USD0.9 billion. Given the larger favourable adjustment of the capital and financial account y/y than the unfavourable change in the current account, Russia achieved an increase in reserve assets of USD2.6 billion compared with a reduction in reserve assets in the first quarter of 2015 of USD10.1 billion.
Outlook and implications
The first-quarter results point clearly to a much-reduced current-account surplus for Russia in 2016. Only very modest recovery of global energy prices in the course of the year, and hence total export earnings given the 53.1% share of energy in the total, is expected. At the same time, however, as energy export earnings declined over the course of 2015, the y/y reduction in relative terms will be less drastic in succeeding quarters. On the other hand, the volume of imports was cut over the course of 2015 as consumers were increasingly pinched in terms of purchasing power and investment decisions were cancelled or deferred due to the deepening recession. Thus, we should also see less dramatic declines in import outlays y/y in succeeding quarters given the reduced base of comparison. Changes in the remaining sub-accounts of the current account y/y will remain moderate and will also continue to offset some of the deterioration on the merchandise trade account. Balancing the anticipated movements in the current and capital and financial accounts in the next three quarters, the stock of reserve assets is likely to remain relatively stable.