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Balance of payments – internal adjustment vs. dollarisation in 1Q14


Yesterday, the CBR published a preliminary BoP estimate for 1Q14.

The current account surprised on the upside, with the surplus rising 13.6% YoY to USD 27.6bn in 1Q14. Following recent revisions to the quarterly estimates, this was the third consecutive quarter of the improving sequential (i.e. seasonally-adjusted) trend, with the CA surplus now hovering around 2.4% of GDP.

While the huge headline net private sector capital outflow figure of USD 63.8bn came as little surprise, the details are more interesting, bringing further evidence that the underlying picture might be improving:

'Grey’ capital flight – which we define as the sum of dubious operations and errors and omissions – almost halved YoY to USD 8.4bn in 1Q14.

Adjusted for paper capital flows (i.e. reinvested earnings) and the Rosneft deal in 1Q13, we estimate that the net FDI balance reversed its nascent rising trend and dipped into the negative area (-USD 5.6bn in 1Q14 vs. +USD 11.3bn last year).

The most significant capital outflows in 1Q14 were related to the dollarisation of savings. First, household demand for FX cash spiked to USD 19.6bn, the highest since 4Q08. Equally important, a whopping USD 35bn increase in banks’ foreign assets suggests that deposit base dollarisation (likely corporate) was nothing shy of the worst of the last crisis. 

The CA surplus continued to build on the improving trend already seen late last year, as softening domestic demand and currency weakness took their toll on imports. Private sector capital outflow was predictably huge, fuelled largely by the dollarisation of savings, which concealed the improving/stabilising trend in structural capital flight. Looking ahead, the ensuing internal adjustment is set to strengthen the CA further into 2014 and is likely to help stabilise RUB, once the trend of dollarising savings dissi
Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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