There will be enough money in Russia’s rainy day reserve fund, the National Wealth Fund (NWF), to withstand at least one more economic crisis, the head of the Audit Chamber, former finance minister and creator of the fund, Alexey Kudrin, said on August 21.
"In 2008 and 2009, half of the Reserve Fund was spent on saving and keeping the budget system. In recent years, in particular during a two-year recession, the second half of the Reserve Fund was spent. Today there is no reserve fund, the NWF remained, and it will be enough for another similar crisis," Kudrin said, speaking in the State Duma lower house of parliament.
According to the Finance Ministry, as of August 1, there was a total of RUB4.844 trillion in the NWF. Moreover, despite predictions that the NWF would also be used up soon, thanks to higher than expected oil prices, currently averaging over $75 per barrel, the fund has started to grow in size again. The NWF expanded to $77.16bn as of August 1 from $77.11bn as of July 1.
The funds were created at the start of Russia’s decade-long boom in the noughties by Kudrin who set up a mechanism to siphon off any excess oil revenues to the budget once oil prices rose above $40 per barrel. The funds reached a peak of $600bn just before the 2008 crash when the government spent some $250bn on supporting the economy over the next few years, cushioning the blow.
Since then the Russian central bank has started to rebuild the reserves. They topped $460bn this summer and the central bank has a stated goal of reaching $500bn to achieve a comfortable level of reserves.
But it is not at all clear if this is possible. Russia grew by a mere 1.6% in the first half of this year and growth is trapped at the level of around 2% for the foreseeable future, according to analysts. With President Vladimir Putin having promised to add an extra RUB2 trillion a year of social and infrastructure spending to the regular RUB16 trillion a year, the Ministry of Finance is on the hunt for new revenues and the NWF has been earmarked as a source for some of the infrastructure investment. The government is currently debating what to put on the national project list that will be set this year.
But some money needs to be kept in reserves in case there is yet another crisis. The federal budget is currently breaking even at $53 per barrel according to Renaissance Capital estimates, well below the average $77.8 per barrel Brent cost in July, but the oil price might change.