Page 47 - RusRPTJul19

Russia bought 274.3 tons of gold. Gold purchases were financed by the Bank of Russia’s almost complete sale of a US Treasury bond portfolio, the organization’s report said. The Central Bank mainly purchases gold from domestic producers. Moscow, buying gold, is seeking to reduce its dependence on the US dollar in the event of extension of sanctions by the United States, notes Bloomberg. In general, countries replenished their gold reserves by 145.5 tons in the first quarter, which is 68% higher than the same period last year. The main buyers of gold this year, WGC also names Kazakhstan, Turkey, India, Ecuador, Qatar and Colombia.
In June the price of gold soared by about 7%,adding about $7bn to Russia’s international reserves (assuming no new purchases since the end of the first quarter of 2019). If the price increase holds, gold will account for some 20% of Russia’s half a trillion dollars in international reserves, approaching the dollar’s share.
The head of the Central Bank of Russia (CBR) Elvira Nabiullina warned the government against spending the National Welfare Fund, 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. But the government can invest the fund once it topples 7% of GDP, a level that is expected to be reached later this year.
The National Welfare Fund currently holds RUB3.8 trillion ($59bn), or 3.6% of GDP. According to the Budget Code, after the liquid part (excluding investments already made) of the NWF reaches 7% of GDP, the excess money coming in to the fund as a result of the budget rule above this minimum can be spent. The Ministry of Finance predicts that this will happen by the end of 2019, when the NWF will accumulate RUB7.9 trillion.
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 suggests.
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.
47 RUSSIA Country Report July 2019 www.intellinews.com