For Russia an external shock from oil is not unlike one from sanctions.
That’s why it is so hard to disentangle the 2014 effect. Both dry up external/budget funding.
A thread on Russia’s macro.
1/ it is one of the few counties with fiscal and current account surpluses.
That’s why it is so hard to disentangle the 2014 effect. Both dry up external/budget funding.
A thread on Russia’s macro.
1/ it is one of the few counties with fiscal and current account surpluses.
Thanks to the massive fiscal adjustment after the 2014 shocks of sanctions and lower oil. Look at the consolidated expenditure on the chart below. 
As a result Russia’s fiscal break even price for oil went from $113 in 2013 to $49 in 2019.
Russia’s energy production breakevens are also low due to the history of high oil producer taxation.
As a result of the implementation of the new fiscal rule that requires purchases of FX in excess $40 per barrel plus annual inflation of 2%, reserves have increased and ruble became much less sensitive to oil price.
Russian energy corporates are not levered and have less of external funding needs. 2014 sanctions removed access to external funding for Russian SOEs that dominate most sectors, but particularly finance and energy.
High real rates attracted investor inflows and helped anchor inflation expectations and the ruble. Risk measured by CDS is at a historical low.
Ruble turnover struggled after sanctions, but has recovered to the pre-sanctions high. @BIS_org survey data on global FX.
Great chart from @Tatiana_Evd on how perception of Russian macro and markets’ risk has become less sensitive to oil price. The same goes for the Ruble.
How much Russia’s budget looses from oil price drops?
- At #oil $40 zero.
- At oil $25 2.4% of GDP if it lasts 1y.
@ru_minfin
Only the liquid part of Russia’s National Wealth Fund is about 7% of GDP.
- At #oil $40 zero.
- At oil $25 2.4% of GDP if it lasts 1y.
@ru_minfin
Only the liquid part of Russia’s National Wealth Fund is about 7% of GDP.
Russia’s budget for 2020 was prepared assuming:
- Urals at 57 (usually at a small discount to Brent).
- Ruble at 65.7 (March 9 starting at 68.6)
- GDP growth at 1.7%
- resulting in a surplus of 0.8% of GDP
- Urals at 57 (usually at a small discount to Brent).
- Ruble at 65.7 (March 9 starting at 68.6)
- GDP growth at 1.7%
- resulting in a surplus of 0.8% of GDP
While Ruble is much less sensitive to oil price as a result of @ru_minfin rule to by FX and @bank_of_russia inflation targeting,
the budget gains automatically from ruble depreciation as 36.7% (6.6% of GDP) of total revenues come from oil and gas and are priced in $.
the budget gains automatically from ruble depreciation as 36.7% (6.6% of GDP) of total revenues come from oil and gas and are priced in $.
Ruble is unlikely to swing as much as in 2014 when it came off managed corridor in a somewhat disorganized fashion. At the time @bank_of_russia had to chase the market with emergency hikes, while leaving behind confusing intervention windows.
Ruble/oil 2014-2017 vs 2017-present
Ruble/oil 2014-2017 vs 2017-present
Unroll @threadreaderapp
Russia's fiscal adjustment is more drastic and consistent than most of the recent historical episodes across markets.
Hence the low break-even oil price of less than $50.
Ruble depreciating, brings break-even oil price lower as revenues are in $ and expenditure in Rubles.
Hence the low break-even oil price of less than $50.
Ruble depreciating, brings break-even oil price lower as revenues are in $ and expenditure in Rubles.
Russia was not afraid to sacrifice growth to achieve massive fiscal adjustment at par or stronger than many #IMF programs.
At $25-30 oil Russia can last 6-10 years.
Russia may sell about $1bn per month with oil at $32.4
The rule is the loss of revenues from oil price below 42.4 is compensated from the sovereign wealth fund.
The fund is now $150bn (9% of GDP)
@ru_minfin
minfin.ru/ru/press-cente…
Russia may sell about $1bn per month with oil at $32.4
The rule is the loss of revenues from oil price below 42.4 is compensated from the sovereign wealth fund.
The fund is now $150bn (9% of GDP)
@ru_minfin
minfin.ru/ru/press-cente…
Russia may sell about $1bn per month with oil at $32.4
The rule is the loss of revenues from oil price below 42.4 is compensated from the sovereign wealth fund.
The fund is now $150bn (9% of GDP)
6-10 years at $25-30 maybe is somewhat exaggerated, but makes a point
@ru_minfin
The rule is the loss of revenues from oil price below 42.4 is compensated from the sovereign wealth fund.
The fund is now $150bn (9% of GDP)
6-10 years at $25-30 maybe is somewhat exaggerated, but makes a point
@ru_minfin
