Capital leaves Russia: experts named the reasons for the record outflow of funds

by time news

While inflation is growing in the country, billions of dollars are flowing to other countries.

The net outflow of capital from Russia in 2021 increased 1.4 times to $72 billion from $50.4 billion in 2020, according to the website of the Bank of Russia. Obviously, the difference in interest rates is no longer so attractive to investors and owners of “hot money”, and the constant presence of a geopolitical trigger inspires few people. As a result, capital continues to leave the country. Independent experts interviewed by MK believe that such a trend hinders the strengthening of the national currency, and also provokes inflation.

Over the past year, $72 billion flowed out of Russia, the figure increased by 42% (in 2020 it was $50.4 billion), data from the Central Bank showed. The outflow of capital took place mainly due to the acquisition of foreign assets by other sectors in the form of direct investment, the regulator explained. In other words, there was a reinvestment of income from foreign subsidiaries. The net outflow of foreign investors’ funds from OFZs and Eurobonds amounted to $3.2 billion against an inflow of $3.9 billion a year earlier.

The increase in net capital outflow from Russia in 2021 is the result of two factors, says Alexander Rozman, senior analyst at Forex Optimum. Thanks to strong demand and excellent pricing conditions for traditional domestic export products, such as oil, gas, metals and other commodities, Russia has received a strong inflow of foreign currency in the form of export earnings. In the first 11 months of 2021, this figure amounted to more than $111 billion. According to Rozman, despite the powerful “currency rain”, the Russian economy is still not able to keep this money, or rather, “absorb it”. Therefore, a surplus of $72 billion through foreign direct investment by large Russian companies (more than $30 billion), through investments in foreign securities by residents (more than $9 billion), through the operations of the Bank of Russia to place the received gold reserves, as well as through withdrawal from Russian OFZs and Eurobonds of non-residents ($3.2 billion) flows to countries where the economic soil is more fertile.

“Certainly, the net outflow of capital implies the predominance of exchange transactions in favor of foreign currencies. This restrains the strengthening of the national currency, underestimating its purchasing power and, thus, especially for countries with a high dependence on imports, like Russia, it overestimates the level of inflation, especially food, which, in principle, we observed in 2021, ”the source of MK notes. “.

Of course, the outflow of capital affects the behavior of the ruble, among other things, emphasizes Anna Bodrova, senior analyst at Alpari IAC. In her opinion, it is quite possible to assume that without such dynamics, the ruble could strengthen much more pronouncedly. “When analyzing the Russian situation, investors pay a lot of attention to the risks associated with geopolitics and the situation for business and businessmen,” continues Bodrova. “We can also say that the increase in capital outflow in 2021 has become one of the catalysts for accelerating domestic Russian inflation.”

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