Russia has reintroduced certain capital controls that were previously implemented after the full-scale invasion of Ukraine, as an effort to support the ruble in light of the economic burden caused by the war. The struggling currency saw a 3.4% increase on Thursday, reaching a value of 96 against the US dollar, its highest level in just over two weeks, following Moscow's late Wednesday announcement that numerous exporters would be required to convert their foreign earnings into rubles.
According to the statement, Russia's financial regulator, Rosfinmonitoring, will oversee and implement the new regulations on 43 companies operating in the energy, metals, grain, and other sectors.
"The primary objective of these measures is to establish stable conditions for enhancing transparency and predictability in the currency market while minimizing the scope for currency speculation," commented Russia's First Deputy Prime Minister Andrei Belousov in a statement released on Wednesday.
A view from the oil company Tatneft in Tatarstan, Russia on June 04, 2023.
Alexander Manzyuk/Anadolu Agency/Getty Images
The spiraling cost of war means growing economic pain for Russia
Similar to the controls implemented by Moscow in February 2022, shortly after its attack on Ukraine, and following a wave of Western sanctions that caused the ruble to plummet to a record low of 135 against the dollar, the current measures include compelling exporters to convert 80% of their foreign currency earnings into rubles instead of holding onto US dollars or euros. Additionally, residents are prohibited from making bank transfers outside of Russia, and Russian brokers are forbidden from selling securities owned by foreigners.
The Russian ruble has experienced a significant decline in value against the US dollar this year, losing more than a third of its value. This depreciation can be attributed to the ongoing war in Ukraine, which has adversely affected Moscow's export-dependent economy. Additionally, Russia's reliance on oil and gas revenues has been compromised due to decreasing income from the energy industry. Consequently, the country's current account surplus has declined by 79% from January to September compared to the same period in the previous year. The diminishing gap between Russia's exports and imports has also contributed to the devaluation of the ruble, as stated by the Russian central bank.
Russia's defense expenditure has significantly increased since the invasion of Ukraine in the previous year. Based on a government document reviewed by Reuters in August, Moscow predicts that its defense spending will reach 9.7 trillion rubles ($100 billion) in 2023, which is nearly three times higher than the amount spent on defense in 2021, prior to the conflict.
Additionally, Russia's budget deficit, representing the disparity between the government's spending and revenue, has surged since the commencement of the war.
The deficit for the first nine months of the year in Russia amounted to 1.7 trillion rubles ($17 billion), as announced by the country's finance ministry on Friday. This is in stark contrast to the surplus of 203 billion rubles ($2 billion) observed during the same period in 2022.
In an effort to stabilize the plummeting ruble, the central bank took immediate action in August by raising its main interest rate.
