Page 42 - RusRPTOct19

National Welfare Fund (NWF) 7% of GDP target has been achieved, but the future of the fund is still under question. In his speech at the Moscow Financial Forum in September, Prime Minister Medvedev officially announced that the National Welfare Fund (NWF) had reached its target of liquid assets of 7% of GDP after which the government is allowed, under the funds rules, to spend any excess.
Achieving this goal increases the flexibility of the government’s budgetary policy and facilitates the second goal of the political agenda: stimulating economic growth through national projects.
“However, based on what the government spokespeople said at the Moscow Forum, there is still no clear position on the future of the NWF, national projects or budget spending. This comes despite the fact that national projects were announced by Putin 15 months ago, and he urged the government to actively engage in their implementation,” said BSC Global Markets chief economist Vladimir Tikhomirov.
The government’s economic policy is largely determined by the financial and economic bloc – the speeches of its representatives showed that their approach remains extremely conservative: the areas where the NWF money can be allocated are yet to be determined, but such funds should not exceed 20% of project CapEx. At the same time, the government must avoid steps that could increase inflationary pressures due to rising government spending – ideally, the Finance Ministry would like to invest the NWF abroad.
Meanwhile, the budget surplus continues to grow, as does the size of the sovereign fund: according to the Finance Ministry, in 8M19, the federal budget surplus increased to 3.7% of GDP, and according to BCS’s estimate, which takes into account the funds deferred this year for the NWF, the volume of the fund today is c$170bn, while its liquid part totalled c7.8% of GDP. At the same time, the NWF continues to expand by $4-5bn per month.
However, sooner or later, the government will have to soften its policy and begin to carry out what it promised, including the national projects.
“According to calculations by the Accounts Chamber, since the start of 2019 the government has spent only around 1/3 of what it has planned for the national projects. This means that, in the remaining 3.5 months of the year, government spending in this area could increase significantly, which should support investments and economic growth. According to the Chamber’s head Kudrin, in 2019, the budget surplus may amount to c1.4% of GDP, i.e. for the remaining months of the year, the surplus may fall by more than 2.5 times from the levels seen in January-August,” according to Tikhomirov.
So far, there is no evidence of more active spending of budget funds in the official statistics. Nevertheless, the likelihood of a significant rise in government spending, coupled with planned hikes in public sector salaries and pensions and the early end of seasonal deflation, forces the CBR to take an increasingly cautious stance when it comes to its monetary policy.
Gold Reserves in Russia increased to 2219.18 tonnes in the third quarter
of 2019 from 2206.99 tonnes in the second quarter of 2019, according to preliminary data. Gold Reserves in Russia averaged 866.06 Tonnes from 2000 until 2019, reaching an all time high of 2219.18 Tonnes in the third quarter of 2019.
42 RUSSIA Country Report October 2019 ww.intellinews.com