After the war of aggression against Ukraine, Russia has been doing quite well for a long time thanks to economic sanctions from the West – at least at first glance. The deep fall followed on Friday: the national currency, the ruble, fell to its lowest level since April 2022, and the Ministry of Finance reported a gap of billions. As a result, long queues formed in front of the banks in a desperate attempt to save the money.
At the start of the war, Russia was able to support the ruble through huge oil and gas prices and with the help of currency reserves. That seems to be over now: the Russian currency broke through the threshold of 90 rubles per euro on Friday morning. The ruble is the world’s third worst-performing currency so far this year, trailing only the Egyptian pound and the Argentine peso.
Confidence in one’s own currency is declining
According to informed circles, the Russian central bank expects an even larger loss next year. Only shortly after the price drop became known, huge queues formed in front of the banks, according to numerous recordings on social media. This is a clear indication that the Russians are losing confidence in their own currency. Without further ado, many tried to salvage at least some of their savings by exchanging them for foreign currency.
Sanctions hit Russia hard
Western sanctions against Russia have often been criticized as useless due to the escalation in Ukraine, but over time it is becoming increasingly clear who holds the remaining power. With declining revenues, the Russian state budget plunged deep into the red in the first quarter of the year.
The deficit from January to March was 2.4 trillion rubles (26.5 billion euros), the Russian finance ministry announced on Friday. For comparison: in the same period of 2022, a substantial surplus of 1.13 trillion rubles (12.83 billion euros) was realized.
Hole can be closed off with state property for the time being
The malaise has even been mitigated by the increasing production of military goods, which keep Russian industry going. Lower revenues from oil and gas exports this year will widen the overall gap in Russia’s state budget, according to European rating agency Scope.
According to an analysis by the credit rating agency, the deficit is likely to reach 3.5 percent of gross domestic product (GDP).
However, the state should be able to close the gap in the state budget without major problems. For the time being, Russia can relatively easily finance its deficit with the National Property Fund.
However, this is likely to melt: by the end of 2024, the fund will probably only correspond to 3.7 percent of GDP, while at the end of 2021 – so shortly before the outbreak of the war against Ukraine – it was 10.4 percent.
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.
