Russia Reserve Fund to be Increased by 50% to $90 Billion - Finance Ministry
01/21/2013| 10:42am US/Eastern
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By Alexander Kolyandr
MOSCOW--Russia will increase its rainy day Reserve Fund by a half, or 900 billion rubles ($29.3 billion), to reach a total of RUB2.8 trillion--slightly more than expected thanks to increased revenue from oil and gas, the finance ministry said on its website Monday.
The Fund should help even out any fiscal consequences of a potential drop in oil prices to $60-$70 per barrel--currently at almost $95 per barrel in Europe--said Julia Tsepliaeva, head of Market Economics Russia and CIS at BNP Paribas, in a research note.
The country created the Reserve Fund in 2004 to help protect it from external economic shocks. The fund is invested abroad in low-yield securities and used when oil and gas incomes fall. Before the 2008 -2009 global financial crisis it contained RUB5 trillion but the amount fell by almost two thirds when it was used as a financial cushion to fight off the worst slump Russia had suffered in 15 years.
As the economy recovered, the government started rebuilding the Fund and by 2011 it had saved nearly RUB1.1 trillion due to a better-than-expected fiscal performance.
The finance ministry's three-year budget plan anticipates an increase of transfers to the fund of RUB1.79 trillion by 2015. However, a mild budget deficit is expected for the period which could result in substantial borrowing in rubles from inside the country.
The government wants to make the country's fiscal policy less oil-dependent and raise the fiscal cushion further, but the policy of saving windfall revenue in the Reserve Fund "has one significant drawback--it makes and will likely continue making local liquidity conditions even tighter unless the central bank is forced to start buying foreign currency," Dmitry Polevoy from ING Bank said. However he noted that the increase of the Reserve Fund probably won't have any impact on the Russian market.
Government officials, including deputy prime ministers and top economy ministers, are calling for a less frugal fiscal policy which would allow Russia to save less and spend more on infrastructure and modernization. President Vladimir Putin has said the National Welfare Fund--the country's other outlet for windfall oil revenue--should invest up to RUB100 billion in domestic projects in 2013.
Write to Alexander Kolyandr at alexander.kolyandr@dowjones.com
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