The head of the Central Bank of Russia (CBR) Elvira Nabiullina warned the government against spending the National Welfare Fund (NWF), urging policy-makers to preserve the sovereign cushion at above 7% of GDP to hedge against possible external shocks in the future.

Currently the "budget rule" stipulates that extra oil and gas revenues above the $40 per barrel cut-off price must be channelled to the NWF rainy day fund. But the government can invest revenues sent to the fund once the total in the fund tops 7% of GDP.

The NWF currently holds RUB3.8 trillion ($59bn), or 3.6% of GDP. The Ministry of Finance predicts that the fund will reach the 7% threshold before the end of 2019 and the NWF will end the year at RUB7.9 trillion. 

Russia’s gross international reserves (GIR) have continued to rise and recently topped the unofficial CBR’s target level of $500bn.

Recent unconfirmed reports suggested that the NWF could be invested in infrastructure projects, to support the downstream refining sector, or to finance the capex of energy majors such as Gazprom. About 40% of the NWF is already invested in various projects and deposited in banks.

"Currently the government suggests de-facto changing the budget rule. This can directly or indirectly change the [cut off] price, which can lead to real appreciation of ruble and lower competitiveness of Russian goods," Nabiullina warned as cited by Reuters.

"Or the stabilising mechanism of the budget rule can be weakened, which would once again expose the economy to external fluctuations," she argued.

In the latest country report on Russia, the International Monetary Fund reminded that tight fiscal framework was one of the main factors behind Russia withstanding sanction pressure, and also warned against unsealing the NWF.

"The 7% of GDP threshold has been set a while ago, and it is worth reassessing whether such volume of liquid assets is sufficient to resist a sudden and prolonged negative turn in external conditions," Nabiullina said, who has won the reputation of being the most orthodox and conservative central banker in the world.

This month the Finance Minister Anton Siluanov promised not to "water down" the excess of the NWF and to coordinate any spending with the CBR. However, he argued that it was not the right decision to "sit on the money", while foreign investors are diverted from Russian projects due to sanctions.

The government has been keen to accumulate resources as it builds a “fiscal fortress” to make the economy sanction-proof. But increasingly the government is under pressure to loosen the purse strings to boost growth as the economy is stagnating. Growth in the first quarter was a mere 0.8% -- way below even the most pessimistic analyst forecasts.