The Russians withdrew a huge amount abroad, comparable to the volume of the budget deficit

“By transferring money to foreign banks, citizens bleed their own economy”

The outflow of Russians’ personal savings abroad is taking on frightening forms in terms of their size and pace. During the year, individuals transferred 3.28 trillion rubles to accounts in foreign banks. This amount is comparable to the federal budget deficit (3.41 trillion), the problem of which the state has not yet been able to solve. The sad thing is that the trend is becoming more and more stable, which means that in an economy in dire need of cash, the lack of liquidity will increase.

The total volume of foreign deposits of Russian citizens today is 5.8 trillion rubles, it has grown by 131% over the year, the Central Bank calculated. The indicator became the highest for the entire period of publication of these reports by the regulator – since 2018. Since the beginning of this year alone, Russians have replenished deposits in foreign credit institutions by more than 1.3 trillion rubles: in January – by 127.4 billion, in February – by 526 billion, in March and April – by 257 billion and 395, 6 billion respectively. As for last year, two months turned out to be record-breaking – July and November: 600 billion and 782.4 billion rubles, respectively. In the period from 2018 to 2021, nothing like this happened: the outflow rate was much lower.

Accordingly, what is happening can be fully explained by the new geopolitical reality: the financial sanctions of the West and the reciprocal currency restrictions of our monetary authorities, the toxicity on the territory of the Russian Federation of the main reserve currencies, the closure of many borders for Russians…

“To a large extent, these transfers are used to finance expenses on foreign trips and to pay for the import of goods and services, but the rest reflects the upward trend in citizens’ savings in foreign instruments,” the Central Bank notes in its review. At the same time, the regulator points out the risks for the owners of such accounts and deposits, in particular, the likelihood of their closure or freezing by the bank (due to fear of secondary sanctions) and its own bankruptcy. The head of the Central Bank Elvira Nabiullina spoke about the consequences for the corporate sector and the economy as a whole in early March, at a meeting with representatives of the financial community. According to her, projects in the field of mechanical engineering, microelectronics, and pharmaceuticals require enhanced lending. But in the face of reduced liquidity, the solution of these tasks is in question.

“The Russians are afraid of new sanctions against the domestic banking system, they are also afraid of the general economic uncertainty,” says Artem Deev, head of the analytical department at AMarkets. – Hence the natural desire to protect their money by any means. Of course, there is no talk of a complete withdrawal of all existing assets. In cases where a person has gone abroad, but continues to work for companies in the Russian Federation, he makes either a one-time large transfer or regular small transactions. The trend towards the withdrawal of foreign currency was strengthened by the removal of a number of restrictions on cross-border transfers in the summer of 2022, against this background, the demand for foreign real estate increased among Russians.

According to the statistics of the Central Bank, the bulk of the withdrawn funds settled in the CIS republics, Georgia and Turkey. And if the local authorities decide to introduce any restrictions for residents of the Russian Federation, citizens may lose money. Plus, no one has canceled the obligation to report to the tax authorities of the Russian Federation if there are accounts in foreign banks. But people are ready to take any risks. As far as the state is concerned, the situation bears only continuous minuses for it: the funds leave the jurisdiction of the Central Bank and the government, the economy loses them irretrievably. And the saddest thing, Deev concludes, is that the authorities are unable to influence this.

“5.8 trillion rubles in non-resident banks is the officially established figure. And how many more cases have people decided not to report to the Federal Tax Service about their opening accounts abroad? asks Igor Nikolaev, Chief Researcher at the Institute of Economics of the Russian Academy of Sciences. – The trend is fully correlated with geopolitical upheavals that generate waves of emigration. Someone, having moved abroad and not finding a job there, asks relatives to send him money for his current life. And someone, staying in the Russian Federation, simply does not want to deal with Russian banks and places funds in Kazakhstan or Armenia. Both bleed the economy, limiting the potential for investment. Of course, both credit institutions and business suffer: the lack of liquidity does not allow them to develop normally. They face another task – to simply survive. At the beginning of 2023, the volume of deposits of individuals in Russian banks amounted to 36.6 trillion rubles. The growth for the year is about 1.4 trillion, which is incomparable with the 3.28 trillion of capital that fled the country.”