Where Has Russia's Current Account Surplus Gone?
Disentangling capital flight from "shadow reserves" while trying to reconcile different data sources.
Russian residents have earned about $252 billion more from the rest of the world than they spent abroad since the start of 2022. The necessary corollary is that Russian residents accumulated about $252 billion more assets abroad than foreigners accumulated in Russia.
The details of these flows matter.
For some, Russia’s outsized current account surplus during the war is a sign of the country’s resilience and imperviousness to sanctions. I have long argued the opposite, pointing out what should be obvious: the surge in the current account balance was a consequence of Russians’ inability to spend their elevated export earnings on goods and services that they wanted.
Big “improvements” in a country’s external position are often caused by acute financial distress, and while Russia’s domestic banking system was mostly unaffected by the sanctions, the broader macro dynamics were similar to those other episodes. The recent compression of the surplus reflects both the success of the oil price cap at limiting hard currency earnings as well as the Russians’ (unfortunate) ability to regain access to many imports.1
The corollary to this disagreement about how to interpret these flows is: what do the accumulated surpluses represent?
Are they an untapped resource that can be used to help the Russians in their invasion of Ukraine? (Although, if so, why hold the war chest in reserve instead of using it when it might make the most difference?) Or are they mostly the corresponding accounting entry for what we know about divestment and emigration from Russia since the start of the war?
Answering this question with complete confidence is impossible, which makes me think that “a mix of both” is probably closest to the truth. Unlike the trade data, the Russian data on financial flows do not always map cleanly to the relevant data from Russia’s international counterparties. Those who downplay the reliability of the Russian sources are more inclined to believe the former interpretation, although my experience has been that the Russian central bank and finance ministry are more likely to suppress information rather than lie. Moreover, the relevant Russian data have been internally consistent across a range of sources, which at least suggests that we should take the available information at face value.
What the Russian Numbers Imply
The Bank of Russia has detailed quarterly data on cross-border transactions through the end of 2022 and preliminary estimates for a few balance of payments aggregates for 2023Q1.2 It also publishes monthly numbers on household financial transactions as well as detailed monthly data on bank deposits. The finance ministry has monthly data on Russia’s National Wealth Fund. These paint a consistent picture of a society that has been forced to deal with massive financial outflows from both Russians and foreign investors.
First, the detailed balance of payments data show that half of the entire current account surplus in 2022 financed purchases (seizures?) of foreign holdings in Russia. Foreigners sold $43 billion of direct investments in Russia, $19 billion of Russian stocks, and $15 billion of Russian debt securities. They also unwound $15 billion in derivative exposures on Russian counterparties. These sales were partly offset by the fact that Russian residents sold $14 billion in their FDI abroad, as well as $11 billion in foreign stocks and bonds and $18 billion in derivatives. This pattern has persisted in the first 3 months of this year, with foreigners selling another $13 billion in Russian assets, against a current account surplus of $19 billion.
Russians bought assets abroad throughout 2022, but a good chunk (not all) of those asset purchases seems to represent capital flight associated with emigration.