The war in Ukraine and the sanctions imposed by the West apparently leave a big hole in the Russian treasury. To fill the gap, the Kremlin is now turning to foreign exchange reserves and gold. This is sold per ton.
Officially, the Moscow Ministry of Finance admitted that 3.6 tons of gold and Chinese currency worth 309 million euros had to be sold. The reason is a budget deficit of 23 billion euros, because the state’s income from the sale of oil and gas has fallen by no less than 46 percent compared to January 2022.
At the same time, government spending increased by 59 percent to 40 billion euros – mainly due to the costs of the attack on Ukraine. The Ministry of Finance in Moscow does not give an official reason for the extra spending.
Western sanctions are slowly taking effect. Most recently, following the importation of crude oil, domestic heating oil and diesel from Russia were also de facto banned or allowed to be exported only at prices below market value. In addition, according to reports, a tenth package of sanctions is already being put together.
Analysts are quite critical of the latest measures taken by the Ministry of Finance. Because many believe that the sale of foreign currency will only push the Russian ruble higher. This, in turn, is likely to further reduce export earnings, which are so important to the Kremlin against the backdrop of sanctions.
Currency sales with boomerang effect?
This process could lead to weaker export earnings, which could necessitate further foreign exchange sales and result in an even stronger ruble. This, in turn, would increase the budget deficit. The Russian currency has appreciated more than four percent against the dollar since the announcement of the ministry and central bank’s plan, trading around 68 against the dollar on Friday.
Russia posted a deficit of 3.3 trillion rubles in 2022, equivalent to 2.3 percent of economic output – one of the worst results since President Vladimir Putin took office more than two decades ago.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
