The government proposes to extend the mandatory sale of foreign currency earnings by exporters until the end of the year

The White House spoke in favor of extending the mandatory sale of foreign currency earnings for a number of large exporters – this norm was introduced by presidential decree last October to stabilize the then weakened ruble. The Ministry of Finance on Tuesday, January 23, supported the extension, the Central Bank opposed it, not finding “weighty reasons” for it. The regulator believes that the national currency exchange rate was more strongly influenced by the tightening of monetary policy and the growth in export volumes. Experts note that the measure accelerated the return of revenue, but the factors that affected the weakening of the ruble in early autumn were temporary – the government, in their opinion, is now reacting rather to the “nervousness” of the market regarding the prospects for the ruble after the presidential elections.

The government advocates extending the requirement for mandatory repatriation of foreign currency and the sale of foreign currency earnings under foreign trade contracts by individual exporters until the end of this year, the White House press service reported, citing First Deputy Prime Minister Andrei Belousov. It is explained that “the measures have shown their effectiveness”: they helped stabilize the situation in the foreign exchange market by achieving a sufficient level of foreign exchange liquidity and covering the shortage of foreign currency necessary for importers to maintain supplies. It is proposed to extend the measures until the end of the year – currently their period is limited to April 30.

Let us recall that the provisions of the presidential decree of October 11, 2023 on the mandatory sale of foreign currency apply to 43 exporters, the share of exports in whose revenue exceeds 60%. The government decree, adopted in addition to the decree, orders these companies, from October 16, to credit their accounts in Russian banks with at least 80% of the currency received under export contracts, and to sell at least 90% of the amounts credited in this way. Vladimir Putin, speaking on Tuesday at a meeting with participants and winners of all-Russian family competitions, promised to adjust the regime for returning proceeds if “something doesn’t work.”

The Ministry of Finance said that it considers the extension of the requirement justified, since the measure “helped stabilize the situation in the domestic foreign exchange market.”

At the same time, the agency promised to consider and finalize the revenue return scheme “in case exporters encounter difficulties in returning it.”

The Central Bank, on the contrary, did not support the extension, noting that they did not see “weighty reasons” for this. “The Bank of Russia believes that in the past months the impact of this measure on the foreign exchange market was moderate compared to the impact on the exchange rate of the ongoing monetary policy and the level of the key rate. A significant contribution was also made by the growth (compared to the lows of mid-summer 2023) in export value volumes, which affect the foreign exchange market with lags associated with the timing of foreign trade settlements,” the regulator said in a statement.

The head of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, also referred to the lack of information about the real impact of the mandatory sale on the exchange rate, asking to discuss the prospects for an extension with the business and soften the requirements – in particular, by reducing the share of revenue that is subject to mandatory sale. According to Kommersant, the business is not satisfied and the need for double conversion when concluding ruble contracts – now the wording broadly extends the rule to all foreign trade contracts, which increases transaction costs in such transactions (and thereby “disincentivizes,” as Mr. Shokhin noted, settlements in rubles under export contracts). “Business Russia” noted that the association stands “for an extensive and substantive dialogue between the government and entrepreneurs” for a more “fine-tuned” regulation – this should also help companies that are implementing investment projects and switching to exporting products of higher value added processes.

Kommersant’s interlocutor in the market notes that business in general does not like “manual management” and increased control over the turnover of foreign currency earnings, since this reduces the ability to manage it abroad (for this, we recall, control over the foreign trade operations of companies and for their reporting of foreign currency assets and liabilities abroad).

At the same time, companies with a significant volume of imports are interested in purchasing foreign currency on the Russian market, while those who export products and have built structures that are not affiliated with the Russian Federation are more protected from sanctions and have a more negative attitude towards tightening requirements. Finally, large exporters, whose costs are mainly in rubles and who were forced to sell a significant amount of revenue, are more likely interested in a weakening of the ruble; those who sell products on the domestic market, on the contrary, are afraid of a drop in demand following rising inflation (if the exchange rate changes). Claims were also made regarding the list of exporters itself – it included companies without a significant amount of foreign exchange earnings, and for some the requirements turned out to be too stringent.

“The measure to introduce mandatory sales of proceeds worked as a factor in returning the market to normal in terms of the activity of this process,” believe chief economist for Russia and the CIS Sofya Donets and economist for Russia and the CIS Andrey Melashchenko from Renaissance Capital. According to their assessment, the Central Bank’s requirements set in the fall were not excessive; in fact, they are at the level of long-term averages. The delay in the sale of proceeds was probably explained by a combination of factors – the restructuring of the foreign exchange market, financial and settlement flows of companies, the unwinding of expectations for the weakening of the ruble, the presence of reserves of ruble funds among exporters and the availability of borrowed ruble liquidity. All these factors were mostly temporary.

“Low volumes of revenue sales are impossible over a long horizon, because companies need to fulfill internal obligations (for taxes, salaries, etc.) in rubles. This is probably why the Central Bank proceeds from the fact that the lifting of restrictions will not affect the market, it will remain normal, with high conversion, since the factors that were in effect in the summer of 2023 will not be repeated now,” explain Sofia Donets and Andrey Melashchenko.

In their opinion, the government may be picking up on “nervousness” in the market, including discussions about what will happen to the ruble “after the elections,” and the planned lifting of sales requirements will also be imposed during this period.

Chief macroeconomist of Ingosstrakh-Investments Management Company Anton Prokudin believes that the requirement for mandatory sales transferred part of the external turnover of exports and imports to the domestic foreign exchange market, which did not change the balance of payments, and the strengthening of the ruble at the end of last year quite naturally affected the results of external transactions : The current account balance began to shrink in October-November, and in December it completely went to zero. Such dynamics clearly indicate a shortage of currency on the market at least in December, but this is a month with seasonal characteristics. At an exchange rate of about 90 rubles/$ in the first quarter, the balance will look better, and currency sales by the Central Bank will compensate for capital outflow, the economist expects. However, there are not very many yuan in the National Welfare Fund, so such strong support from the Central Bank will not last long: already in the summer, the Central Bank will apparently cut sales by half, and by the summer of next year it may completely stop selling currency. “This will certainly have a bad effect on the ruble exchange rate, which is now overstrengthened, and in the case of normal practice (constant purchases of foreign currency into gold and foreign exchange reserves), the exchange rate would be closer to 100 rubles. and moved upward,” concludes Anton Prokudin, noting that the requirement to sell proceeds in the current conditions hardly affects the exchange rate.

Tatiana Edovina, Evgenia Kryuchkova