{{Mathematically Russia has enough reserves to hold out for at least two years before Western sanctions start to choke the economy, but it must avoid reawakening the “sleeping dragon” of investor panic.}}
At first glance, the stockpile — $472 billion of hard currency reserves and nearly $1.5 trillion of assets overall — is more than enough to keep banks, firms and the economy going as the West tries to punish Moscow over the Ukrainian crisis.
But this ignores the psychological effect. Russia burned through $200 billion in six months during its last major crisis in 2008-09; if reserves were to start draining away again, panic could quickly set in among people inside and outside the country, accelerating a flight of capital.
The United States and European Union first imposed sanctions after Russia annexed Crimea from Ukraine in March and have since tightened them significantly.
This week, the EU froze five state-controlled banks out of its capital markets in measures targeted at Russia’s financial, military and energy industries.
While Russia is on the verge of recession, analysts and investors generally agree with Russian officials when they say that its finances can withstand a tightening of the screws for now.
“They have reserves of almost half a trillion dollars. Given the minimal refinancing needs of the sanctioned banks, they’re in a reasonably comfortable position,” said Brett Diment, head of emerging markets funds for Aberdeen Asset Management.
Those needs are in the range of $7-8 billion in the next year, and the Central Bank has said it will support any domestic bank hit by the sanctions.
Analysts at Morgan Stanley calculate that the reserves, which are the fifth largest in the world, could cover all maturing external debt three times over and imports for around 17 months.
That’s much longer than the six months threshold, below which alarm bells usually start ringing with emerging economies.
Reuters calculations based on Central Bank data show that big Russian banks must refinance around $50 billion of debt this year and next, while companies’ needs are closer to $100 billion.
This seems manageable, but many factors are not clear-cut. About a third of the reserves are in two oil wealth funds earmarked for countering drops in international oil prices rather then funding banks or firms.
Roughly $40 billion is in gold, while $13 billion is parked at the IMF, official data show.
Russia also needs to keep income flowing from energy exports. While the EU sanctions target European exports of equipment to the Russian oil industry, those for gas production are exempt.
This underlines a basic interdependence: Europe needs Russian gas, just as Russia needs the money it earns.
{themoscowtimes}
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