BOFIT Weekly Review 2015/28
Russia spending oil funds in the first half
Over the past decade, Russia has accumulated tax revenue from oil and gas export earnings in two state funds. The Reserve Fund is used to fund fiscal deficits during economic downturns. The National Welfare Fund is intended primarily for pension funding, but has also been used for economic stimulus during weaker economic development.
The value of the Reserve Fund diminished by $11 billion (700 billion rubles) during January-June. Most of it was withdrawn to cover budget spending, but the dollar value of the Fund is also affected by exchange rate changes. At end-June, Reserve Fund assets stood at $77 billion (4.3 trillion rubles). The finance ministry expects the Reserve Fund to contract by the end of this year to around 2.4 trillion rubles (3 % of GDP) and to 500 billion rubles (0.5 % of GDP) by the end of 2017. These prognoses assume e.g. that the price of oil will rise from an average of $50 a barrel this year to $65 in 2017. The Reserve Fund is invested in liquid foreign assets and included in Russia’s currency reserves.
Over $4 billion (240 billion rubles) from the National Welfare Fund has been invested this year in bank deposits and securities for financing infrastructure projects. According to last spring’s government decision, up to 550 billion rubles in the fund’s assets may be used this year on measures to support the economy. As of end-June, the National Welfare Fund was worth $76 billion (4.2 trillion rubles). A third of its assets are invested in longer term assets (e.g. long-term deposits), while the rest is invested in liquid foreign assets and counted as part of Russia’s currency reserves.
Although the majority of the assets of the two funds are included in Russia’s currency reserves, currency reserves do not automatically shrink when the finance ministry withdraws money if the money is withdrawn in rubles.