Roads & Fools

As promised, Russia’s Reserve Fund and National Welfare Fund have been merged.

“According to the new norms of the Budget Code, all additional oil and gas revenues of the budget will be channeled into the NWF.”

A brief background:

“The Reserve Fund and the NWF were established in 2008 after splitting the Stabilization Fund, to which the authorities channeled additional revenues from rising hydrocarbon prices. The Reserve Fund then became a source of financing the budget deficit in the event of a sharp fall in the revenues of the treasury [which is exactly what happened after the sharp drop in oil prices started in 2014, -ed.], and the NWF was created as part of the [long-term] pension provision mechanism… and financing long-term self-supporting [!? -ed] infrastructure projects.”

According to Minister of Finance Anton Siluanov, there “should be 3.7 trillion rubles [in the Fund] [or “slightly more than 4% of GDP”, -ed], and its liquid part, that is, free balances not invested in assets, 2.3 trillion rubles.”

About one-third of the Fund will be spent in 2018, according to Argumenti i Fakti.

“It [the NWF] will be replenished at the expense of the currency the Ministry [of Finance] buys on the exchange, using revenues from oil prices above $40 a barrel.”

Meanwhile, Interfax reported on 20 December that “…$6.25 billion of the NWF’s funds are sitting at VEB [Vnesheconombank] in a foreign currency account.”

At the time, Siluanov promised:

“…in order to close our currency position, we need rubles. VEB will carry out this operation gradually, with the agreement of the Central Bank, smoothly, without affecting the currency market….”

This had already been decided based on a decree signed by Russian Prime Minister Dmitry Medvedev back in November.

According to Kommersant:

“In June, the government supported the idea of pooling the resources… [of the two Funds], [that had been] proposed by the Ministry of Finance. The question was whether to direct funds to the NWF, not used to finance infrastructure projects, to cover the budget deficit, after funds of the Reserve Fund used for this purpose had been exhausted.”

Analyst Dmitry Golubovsky told Argumenti i Fakty:

“There is still enough money, because there are still funds in the NWF. Now the Ministry of Finance is engaged in transferring money from one account to another. This is due to the peculiarities of budget accounting. As for the Reserve Fund, its funds go to pay off the budget deficit, which was created as a result of the government spending more than it earns in the face of falling oil revenues. The size of this fund depends on the price of Brent crude oil in rubles. If it costs less than 3600-3700 rubles, then the government needs to take money from somewhere [else] and plug the hole. And since most of this year, oil was cheaper than this, we had to eat into the foreign exchange reserves.”

He continued:

“So what does it really mean that the reserve funds are exhausted? The government said that by the end of this year [2017], the money in the Reserve Fund will be exhausted, next year, if the price of oil falls, the NWF may also run out. If prices remain stable, at the current level, nothing will happen. This situation speaks only to one thing – that you need to start living within your means, and the cost of oil should not fall below 3800 [rubles]. If it is lower [than this] when the funds run out, the ruble rate will begin to be strictly correlated to the price of oil. Now we have a ruble cut off from the price of oil, you can see a very low dependence [emphasis added, -ed]. The rate is now determined purely by the dynamics of interest rates, taking into account the demand for OFZs [another scheme scam by the CBR & Ministry of Finance to prop up the ruble, -ed.]. But when there is no reserve money [left], then… everything will be determined by what happens in the commodity market.”

In the meantime, the Ministry of Economic Development is also desperate for these same funds.

In an article bearing the headline: “NWF funds will become more accessible”, Kommersant reported on 19 December that:

“The Ministry of Economic Development published a draft amendment to the government decree that will remove obstacles to the use of these funds – in particular, they can be used to pay… for concession agreements.”

The amendments “…take into account the specifics of the activities of Russian Railways and Avtodor [aka: Russian Highways, -ed], “including the need to ensure the stability of the conditions for their implementation.”

Kommersant had previously reported that Russian Railways and Avtodor had been having problems getting money for their projects due to the new rules “that run counter to the current legislation.”

The Ministry of Economic Development’s proposed amendments should be implemented by March, the newspaper concluded.

The “rainy day” that Russia was saving for turned out to be questionable infrastructure projects and foreign adventurism.

Roads and fools.


For more on this subject, you can read my earlier blog posts here and here and here

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s