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Russia’s Massive Capital Outflow Has Silver Lining

Capital outflows are usually deemed to be a negative development for any economy, but in Russia’s case they help avoid economic overheating and are natural considering the country’s poor business climate, Russia’s finance ministry and the International Monetary Fund say.

Before the crisis that began in 2008, Russia was benefiting from rallying oil prices and risk appetite, attracting net capital inflows of $41.1 billion in 2006 and $81.7 billion in 2007, according to the central bank. In the following four years, however, the world’s largest oil producer saw nearly $305 billion leave and is on track to post around $60 billion in outflows this year.

“It is inevitable in the current state of the economy and, in some sense, it’s not that bad as Russia’s exports with current oil prices are generating more resources than it could be invested in Russia without creating bubbles,” Deputy Finance Minister Alexei Moiseev told journalists on the sidelines of a banking conference in Moscow on Friday. “It’s a big achievement that with a transition to the floating ruble the economy can balance itself. It digests exactly the same amount of money as it is able to do.”

The IMF agrees that capital outflows from Russia are natural in the current global and domestic environment.

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