The Russian Central Bank’s Forecast of the Capital Outflow at the Level of $85bn is Fairly Realistic

Within the frameworks of the St. Petersburg International Economic Forum, Elvira Nabiullina, Chairman of the Central Bank of Russia said that in 2014 the Russian Central Bank forecasted a capital outflow fr om Russia at the level of $85bn-$90bn. It is to be noted that only in Q1 2014 the capital outflow amounted to $63bn with internal conversion and purchasing of cash foreign currency by households and companies accounting for two thirds of that amount.  

In Russia, there is an unusual situation related to capital outflow. The thing is that the country receives more foreign exchange than spends it, that is, there is a trade balance surplus. The above points to the fact that there are no fundamental reasons for capital flight. However, during the entire period of the latest history the net inflow of capital was observed only in the 2006–2007 period. The factors behind capital outflow should be looked for not in external factors alone. For example, in Q1 2014 capital flight was related to geopolitical instability and volatility on external markets.

 At present, the situation around the capital outflow is not that critical as it seemed at the beginning of the year: one can witness a stable gross inflow of capital which is evidence of investors’ higher interest in the Russian economy. So, the forecast of capital outflow at the level of $85bn is a fairly realistic one. There will be no surprise, if the ultimate index happens to be lower.

The situation is bound to stabilize. However, both the Central Bank of Russia and the Ministry of Economic Development have to look into the factors which are behind the capital flight. For that purpose, it is important to carry out an analysis of large banks and companies with participation of the state. For example, if Sberbank and the VTB build up currency assets, thus, ensuring the outflow of capital it is necessary to understand why they are doing that. The same stands for large state-owned companies. It is important to understand the following: if they invest funds in foreign projects, it is one thing and if they accumulate reserves in foreign banks, it is quite the opposite. Otherwise, it is an absurd situation wh ere banks and state-owned companies play against the government by stimulating the outflow of capital.

 Alexei Vedev, Director of the Structural Research Center