Late Friday, the CBR published its final estimate of BoP and external debt in 1Q13. The CA surplus was revised down USD 2.8bn to USD 25.1bn, mainly due to the upwards revision of the investment income and services deficits.
The FDI balance hit a record low of a USD 26.5bn deficit as the net increase in foreign liabilities was lower than the net hike in foreign assets. The portfolio investment balance also printed a deficit following four quarters of surpluses, although it was modest (USD 1.1bn). Outflows in dubious operations slid 7.1% YoY to USD 9.2bn. Net errors and omissions was up from USD 5.1bn in 1Q12 to USD 6.2bn in 1Q13. External debt surged to USD 691.1bn from USD 637.8bn, mainly in advance of nonfinancial companies’ long-term debt from USD 228.7bn to USD 252.5bn.
The CBR’s revision of the 1Q13 BoP numbers was light and outlined the vulnerability of Russia’s external positions: the CA surplus declined from 8.6% of GDP in 1Q12 to just 5.1% in 1Q13, despite oil quotes dropping only 5% YoY; expanding deficits of CA items outside trade in goods tapered the CA surplus.
The financial accounts were heavily distorted by the Rosneft TNK-BP deal that was finalised in 1Q13: the data on FDI inflows and outflows, as well as loans and borrowings, was mainly determined by it. The surge in external debt was also driven by this, since as a result of the deal Russia replaced part of equity investments with debt.
We believe that the outflows problem in the part of dubious operations (coupled with net errors and omissions, they represent 61% of the CA surplus) needs to be addressed mainly by anti-money laundering activities. Persistent dubious operations outflows combined with the CA deficit in July-August and actual transfer of dividends to foreign shareholders (to be recorded in FA) is set to put pressure on RUB. However, we believe CBR interventions will be enough to prevent the currency weakening from its present levels.