Russia rainy day fund shrinks by US$38b as government plugs deficit

Russian President Vladimir Putin meets employees at a plant producing missiles, in Saint Petersburg, Russia, on Jan 18, 2023. PHOTO: REUTERS

MOSCOW - Russia’s National Wealth Fund shrank to US$148.4 billion (S$195 billion) as of Jan 1, down US$38.1 billion in a month, as the government took out cash to plug its budget deficit, data showed on Wednesday.

The ministry said it had spent 2.41 trillion roubles (S$46 billion) from the NWF, a rainy day fund that accumulates oil revenues, to cover the deficit in December.

Along with heavy state borrowing at domestic debt auctions, the NWF - which was originally intended to support the pension system - has become the main source of financing for the budget deficit since Russia invaded Ukraine last year and was hit by waves of unprecedented Western sanctions.

The government also drew on it last year to prop up struggling state companies including Russian Railways and the airline Aeroflot.

Analysts have said Russia’s attempts to plug its budget deficit by selling foreign currency reserves could lead to a vicious circle that pushes the rouble higher and further reduces the Kremlin’s crucial export revenues from oil and gas.

The size of the NWF at Jan 1 was equivalent to 7.8 per cent of gross domestic product, the finance ministry said. But only US$87.2 billion, or 4.6 per cent of GDP, was in liquid assets.

At Feb 1 last year, three weeks before the invasion, the total fund stood at US$174.9 billion, or 10.2 per cent of projected GDP.

Finance Minister Anton Siluanov said last week that Russia recorded a budget deficit of 2.3 per cent of GDP last year, having targeted a surplus of 1 per cent before the start of the war.

According to the budget law, the finance ministry can spend another 4.2 trillion roubles, currently worth around US$61 billion, over the next two years to plug the deficit.

As a result, according to the ministry, NWF liquid funds in accounts with the central bank could fall to 2.3 trillion roubles or 1.4 per cent of GDP by the end of 2024, which the Accounts Chamber said would be the lowest ratio for 20 years.

In a further indication of pressure on the budget, finance ministry data showed that tax revenues from imports, which are subject to duties and value-added tax, fell by 20 per cent or almost 1 trillion roubles in 2022.

Imports plummeted last year as a result of Western sanctions and an exodus of Western firms from Russia, though they began to recover in the second half of the year. REUTERS

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