Foreign exchange reserves still critically low

Regardless of the following transfer of the EurAsEC loan in the near future and two more in 2012, the actual volume of foreign exchange reserves is far from the safe level.

The NBB assesses the deficit balance of payments at $ 1.4 billion and as a consequence, foreign exchange reserves in 2012 could amount to USD 6.1 billion. However two transfers within the Anti-Crisis Fund of theEurAsEC loan agreement of total USD 880 million will increase the foreign exchange reserves up to $ 7 billion. The National Bank believes this amount will close the gap in foreign deficit in 2012.

Regardless of authorities’ statements about the increased foreign exchange reserves, their real value is still far from being safe. For instance, one of the criteria of minimal sufficiency of ForEx reserves that ensures the economic security of the country is that it amounts to 3 months of imports, namely, about $ 12 billion by the end of 2012. It implies that the foreign exchange reserves should be increased by USD 4.6 billion however there are no options at the moment that would secure such an increase. Moreover the volume of foreign exchange reserves of $ 7 billion should be treated carefully, as almost half of it constitute various loans from commercial banks, ergo 1) this money is not ‘real’, 2) loans need to be repaid in the following 10-15 years.

Apart from the projected trade surplus in 2012 of USD 1.3-1.5 billion (which is not yet a fact), USD 3.7 billion is still needed to pay for the customs duties on petroleum products to Russia. In addition, substantial funds (approximately USD 5 billion) will be spent on the repayment and servicing of the external debt (USD 1.2 billion of interest on total external debt, USD 3 billion to pay off the principal debt, and USD 460 million of liabilities of the National Bank).

Therefore, in 2012-2013 the need for external financing will remain and will not reduce. Moreover, the repayment amounts will almost double. Nevertheless, the authorities are not considering the possibility of a stabilization loan from the IMF, which, apart from its financial implications, carries a meesage to investros (including investment banks) that the country has embarked on reforms and it can be dealt with.