Russian businesses have billions stuck overseas due to payment delays: ‘it’s a new reality’
- Russian banks are facing a shortfall of yuan, the main foreign currency for the country’s external trade nowadays, that’s forced up costs
Russian businesses saw a massive jump this year in the amount of cash piling up abroad as the threat of secondary financial sanctions from the US causes increasing delays in international trade settlements.
Foreign financial assets increased by almost US$45 billion in the first seven months, compared with a gain of US$21 billion in the same period the previous year, according to Bank of Russia data published on Tuesday. While some of that is investment abroad, the surge is mainly an accumulation of Russian companies’ accounts receivable due to difficulties with international payments, the central bank said.
The latest US efforts to limit the Kremlin’s ability to finance its war against Ukraine have raised the risk of secondary sanctions even for local banks in countries that trade with Russia, leading to longer delays and more disruptions with payments to and from key partners, including China and Turkey.
“It’s a new reality,” said Sofya Donets, an economist at T-Investments. “Banks have always had deposits in foreign banks and vice versa. To a large extent it has always been a story about reciprocal settlements, it was necessary to keep them with each other. Now it’s taken on another, new form that mirrors trade activity: Debt.”
The settlement delays between Russian importers and exporters and their foreign counterparties haven’t caused trade to collapse, but are squeezing liquidity, according to Alex Isakov, Russia economist at Bloomberg Economics. Russian corporations have to wait longer to get money for their exports and make payments for imports farther in advance, resulting in what is essentially forced lending, he said.
“Forced trade funding means that hard currency is scarcer and costlier,” Isakov said.
