Reserves for times of crisis
Moscow facilitates tapping into the sovereign wealth fund
01/26/2023, 2:16 p.m
The war and the associated crisis are throwing the Russian state budget into difficulties. Recently, the Kremlin has therefore repeatedly used reserves from the oil and gas revenues of recent years. Now the Ministry of Finance is once again lowering the hurdles for access to the sovereign wealth fund.
The Russian government should be able to tap into the state fund, which is filled with many billions, more easily in the future. Investments to combat the crisis should be made independently of the amount of liquid assets in the fund, as the Ministry of Finance announced. “These changes will ensure reliable support for key sectors of the Russian economy under the current difficult geopolitical and macroeconomic conditions,” the statement said. The step is intended to enable investments in fighting the crisis.
Traditionally, the fiscally conservative Russian authorities have been reluctant to use funds from the sovereign wealth fund. The changes now planned indicate that they want to be more creative in order to prevent economic downturns. Moscow has ramped up spending on the war in Ukraine as the economy shrinks and the state ran a budget deficit last year.
Deficit of 3.3 trillion rubles
The Russian sovereign wealth fund is fed by years of profits from the country’s oil and gas exports. On January 1, it was still filled with $148.4 billion, which corresponds to 7.8 percent of gross domestic product (GDP). However, only a good $87 billion of this is liquid funds, which corresponds to 4.6 percent of GDP. The Treasury fears that share could fall to 1.4 percent by 2024 — its lowest level in 20 years. As recently as December, the government withdrew $38.1 billion in cash from the fund to help cover its budget deficit.
The Russian state was in the red last year because of the high costs of the war against Ukraine. The deficit totals 3.3 trillion rubles (around 44 billion euros), as Finance Minister Anton Siluanov recently announced. This corresponds to 2.3 percent of the gross domestic product. Last September, President Vladimir Putin forecast a surplus of almost half a trillion rubles.