Hefty Reserves, Budget Surplus and Low Debt: Russia Says It Will Beat Western Sanctions

Possible western sanctions against Russian banks will lead to a spike in market volatility but Russia will be able to withstand restrictions thanks to abundant reserves, Finance Minister Anton Siluanov said on Wednesday.

U.S. and European officials are finalising an extensive package of penalties should Russia invade Ukraine. Moscow has repeatedly denied it has such a plan.

Enough Forex Liquidity and Gold Reserves

Such sanctions could target major Russian banks and its energy sector but will not include banning Russia from the SWIFT financial system, according to U.S. and European officials.

Russian Rouble
Russian Rouble Pixabay

Siluanov said sanctions against Russian banks would be "unpleasant" but the state will make sure that all deposits with banks, all transactions, including in foreign currencies, are secured.

"Thank god we have enough forex liquidity and enough forex reserves," Siluanov told reporters.

"They say we have a financial shield in the form of gold and forex reserves, budget surplus and [budget] rule, low debt."

If new sanctions target Russian energy companies, Russia would be ready to re-route its supplies to other markets, Siluanov said.

Alternative Means

Russia has been living under financial and economic sanctions since 2014 when the West attempted to punish it for annexing Crimea and for its role in the military conflict in Ukraine.

Restrictions prompted banks and companies to reduce dependence on global debt markets, while Russia focused on replenishing reserves and developing its own financial systems as alternative to SWIFT or Visa and MasterCard.

Vladimir Putin

Siluanov said Russia will be able to switch to other financial systems if it is cut off from SWIFT.

"We expect the country's financial system to continue to focus inwards as part of the "Fortress Russia" strategy and advance digital and fintech sovereignty," the Institute of International Finance.

Siluanov said possible restrictions on buying of Russian debt would be "unpleasant but not fatal" for Russia, which had nearly $635 billion in gold and forex reserves as of early February.

The minister said Russia had no plans to revise its 2022 borrowing plan worth 3.3 trillion roubles ($44 billion), preferring to raise funds via OFZ bonds with fixed coupons, while also offering bonds with floating-rate coupons.

Once the current situation calms down, Russia will consider testing foreign demand for Russian Eurobonds, Siluanov said.