In 2022 an enormous $253bn of capital left Russia, which has depleted Russia’s already reduced hard currency reserves and is a major contributing factor to the weakening of the ruble.

According to the findings of the central bank’s Centre for Macroeconomic Analysis and Short-Term Forecasting (CMACF), this massive capital exodus was primarily attributed to four key channels: foreign trade, loan repayments, individuals taking out cash abroad and the exit of foreign direct investment (FDI), reports RBC.

Last year’s capital flight was equivalent to 13.5% of GDP and almost twice as much as the last big exodus of capital, following the 2008 global crisis when $133bn left in a year. The Central Bank of Russia (CBR) is working hard to stem the flow and has hiked interest rates dramatically this year, but the problem has become so large that the Ministry of Finance (MinFin) is talking about reintroducing stricter capital controls to stop the haemorrhaging. And capital flight in 2023 seems to be slowing, with a reported $27bn exiting the country, year to date, according to the CBR.

The most significant capital flight channel was foreign trade, accounting for $66bn. The CBR reported that more than half (58%) of capital flight was due to companies making advance payments in other countries for goods that were never delivered. At the same time, the export financing from foreign to domestic banks contributed to this surge, compared with the $11bn recorded in 2021, the CBR said.

The second largest channel was the repayment of loans and borrowings from domestic banks and non-financial enterprises, amounting to $62bn, RBC reports.

Transactions by individuals constituted the third channel, totalling $47bn. This included a substantial increase in private deposits in foreign banks worth $33bn, as Russian residents sought to protect their savings by turning them into dollars and euros, deposited in bank accounts abroad. There was also an upsurge in cash withdrawals for the traditional “mattress money” among the population, cash dollars kept at home, amounting to $14bn. As of July 1, 2023, Russians held RUB6.36 trillion, equivalent to $73bn, in deposits in foreign banks.

The fourth channel was the withdrawal of foreign direct investment, which accounted for $40bn. Thousands of foreign firms have suspended their work in Russia and stopped expansion plans, although less than 10% have actually completed a full withdrawal from the Russian market. The FDI-related capital flight was partly attributed to the "relocation" of funds to other jurisdictions, including transactions involving the acquisition of former Russian assets owned by foreign companies.

While a net capital outflow occurs when the withdrawal of money from the country surpasses its inflow from non-residents, the concept is equivalent to the "positive balance of financial transactions of the private sector", according to the central bank. This balance amounted to $227bn in 2022, although variations may arise due to differing calculation methods. It's essential to distinguish these operations from dubious money outflows from the country, that are recorded in the “net errors and omissions” in the national accounts, which were estimated at $1bn by the regulator in 2022.

Capital outflows have always occurred whenever Russia receives an external shock; however, the CMACF analysts regarded the 2022 record volumes as abnormal.

The volume of capital flight was the highest as a percentage of GDP since at least 2001, and occurred against the backdrop of the West’s extreme sanctions regime as well as the CBR’s own capital controls. The outflow in 2022 surpassed previous crises such as 2014 ($165bn) and 2008 ($143bn).

The CMACF anticipates capital outflow will slow now as businesses and citizens adapt to the new economic landscape. In 2023, there has been a significant decrease in outflow intensity across all channels, with the total outflow for January to June amounting to $27bn.