Page 61 - RusRPTFeb19

5.2.4 Gross international reserves
Russia’s gross international reserves (GIR) fell slight as of the end of November to $379.2bn from this year’s peak of $383.4bn set in September, but the sovereign rainy day fund, the National Welfare Fund (NWF), fell more heavily from this year’s peak of $77.16 set in August to $68.55bn as of the start of December.
Despite all of Russia’s sanction travails it has managed to add $9.6bn to its GIR YTD and $3.4bn to the NWF.
The Central Bank of Russia (CBR) has been aiming to increase Russia’s reserves to $500bn, but since the threat of new “crushing” sanctions that may be imposed on Russia after the holidays it has abandoned this policy for the meantime as it battens down the financial hatches in the face of possible instability if the US go for a nuclear option of targeted Russian sovereign bonds.
The growth in reserves have been helped by a large current account surplus thanks to higher than expected average oil prices this year.
The current account surplus quadrupled to $87.9bn in January-October 2018 compared to the same period in 2017, the central bank said on November 13.
Russia is also running a 3% GDP budget surplus, although this is expected to fall to 2.2% by the end of the year as December is a month of heavy government spending. Russia Inc is currently in profit as although oil prices are lower than in the boom years, after extensive reforms and cost cutting the break even prices needed to balance the budget has fallen to $53 whereas the average price of oil for this year has been circa $70.
Finally, in another move to protect the country from possible sanctions Russia has been selling off its holdings of US Tresuary bills and building up its gold reserves, having added $2.5bn to the reserves in the course of this year to bring gold reserves to an all time high of $82.9bn of November. Gold now accounts for 21.9% of all Russia’s reserves, up from 15% as of January 2015.
The National Welfare Fund, where the state’s excess revenues from oil and gas taxes are deposited, stood at $58bn at end of 2018. The size of the Fund declined by 11% from the end of 2017.
Last year’s budget surplus will be transferred to the Fund later this year. According to preliminary figures, the Fund corresponded to just under 4% of gross domestic product at the end of last year. Under the 2019 budget, the Fund’s size should rise to around 7.5% of GDP by the end of this year. The Fund should then continue to accumulate assets so that in 2021 it equals 12% of GDP. The large savings should help Russia weather weaker economic performance in coming years.
Investments of the National Welfare Fund fall into two categories. The first category consists of assets that are invested in liquid, high-grade sovereign bonds of OECD countries. The second category includes deposits at the state development bank VEB, which then lends the assets forward to fund development projects. At the end of last year, 58% of the National Welfare Fund’s assets were invested in assets of the first category. Of that, 45% was held in debt securities denominated in euros, 45% in US dollars and 10% in British pounds.
The Central Bank of Russia’s foreign currency and gold reserves increased by 8% last year to a value of 468bn dollars. The share of gold in the reserves rose last year, and currently stands at about 19% of assets. Russia’s reserves are now sufficient to cover about 22 months’ worth of goods imports. By this measure, Russia’s reserves are substantial by international standards, especially given the small size of Russia’s foreign debt. Russia’s foreign currency and gold reserves are the world’s fifth largest after China, Japan,
61 RUSSIA Country Report February 2019 www.intellinews.com