The Ministry of Finance posted a long explanation at the beginning of the week on the state of Russia’s two reserve funds. I was planning on breaking it down, but Vladimir Milov has done my work for me. Some key points:
In the Reserve Fund as of 1 January , there were only 0.97 trillion rubles, [that is] more than a trillion rubles were spent [in December alone];
It is unclear, Milov continues, what happened to the money supposedly received from the “privatization” of Rosneft [see my previous blog post on this].
In the SWF [Sovereign Welfare Fund] remains 2.8 trillion rubles that are “liquid” (© Siluanov).
And finally, Milov writes, the budget deficit for 2017 is slated to be 2.75 trillion rubles.
If everything continues in the current trajectory, by the end of this year the two funds will be depleted.
“Anyone who tells you that this supposedly “does not matter because the government is selling the currency to the Central Bank, while maintaining the same volume of gold reserves” is dissembling or does not understand the essence of the matter, because to finance the budget deficit with the gold reserves is useless.”
And once the reserves are empty, then “the fiscal deficit can only be financed by borrowing (and in this respect, the removal of the sanctions acquires a decisive role), or the Central Bank has to loan money to the government…”
Or the third option the government could take is budget cuts.
For reference – even at today’s frozen budget expenditures:
- real pensions declined by 3.5% for 11 months of 2016;
- the indexation of wages in education and health care for 11 months in 2016 were 4.2% and 6%, respectively (Rosstat).
By reducing budget spending you can imagine what will happen.