Russian oil revenues channelled to wealth fund

RUSSIA’S drive to fill state coffers to give itself a $200 billion (R3 trillion) buffer against threats like new US sanctions is prudent, analysts say, but will come at the expense of economic growth.

With oil prices high, Russia has been steadily siphoning revenues from its major export into the National Wealth Fund (NWF). It has also raised oil industry taxes, hiked value-added tax and – in a move that has hurt President Vladimir Putin’s popularity – sharply increased the pension age.

The Ministry of Finance believes those and other changes will almost quadruple the size of the NWF to 14.2 trillion roubles (R3.2 trillion) or 12 percent of gross domestic product in 2021.

Under a “fiscal rule”, any revenue from oil prices higher than $40 per barrel goes into the NWF, which is part of Russia’s gold and foreign exchange reserves, held by the central bank.

Analysts say the savings strategy, which was set out in a 2019-21 budget plan, is fiscally ultra-cautious and prudent.

But they also warn it prioritises stability over development, will see Russia fall short of Putin’s goal of joining the world’s top five economies by 2024, and shows the Kremlin is worried about more sanctions.

“This is good from the budget and financial stability point of view, but bad from the economic development point of view,” said Vladimir Tikhomirov, chief economist at BCS brokerage.

“Our reserves are going to grow quickly but at the same time there will be less money that could be used to renew the economy.”

The government has said it plans to borrow money to fund development projects rather than dip into the NWF. |