BOFIT Viikkokatsaus / BOFIT Weekly 2019/39

The discussion has focused on investing liquid assets in the National Welfare Fund (NWF) when the liquid assets exceed a targeted limit. Budget legislation says that when NWF liquid assets surpass 7 % of GDP, the excess can be invested in such purposes as lending to domestic investment projects, but not to cover budget spending.

Part of NWF assets have already earlier been tied e.g. through project lending, so while the fund’s total assets presently amount to 7.5 % of GDP, the liquid assets are about 6 % of GDP. The 7 % liquid asset limit should be met next year as finance ministry accounts already hold a more than sufficient amount of sc. excess oil & gas tax revenues that have piled up this year and are waiting to be transferred to the NWF. Under the rules of the NWF, the excess oil tax earnings of each year must be deposited in the NWF no later than October 1 of the following year. In 2018 and 2019, the transfers were made in summer. The federal budget rule says that excess oil tax revenues are generated when the actual price for Urals crude exceeds the computational (base) price set by the rule. The base price increases automatically at 2 % a year, so this year’s base price is over 42 dollars a barrel.

The Central Bank of Russia has assessed the economic impacts from a couple of options for investment of NWF assets. In addition to investment in domestic projects, the assessments cover lending to foreign entities that would then commit to using the money to purchase Russian products. The options, however, do not represent any CBR view on the matter. CBR governor Elvira Nabiullina recently noted that a clearer choice would be to raise the budget rule’s base price of oil and thereby impact the flow of excess revenues channelled to the NWF.

The finance ministry stressed there are no plans to modify the budget rule, noting that moneys invested from the NWF are to be paid back to the fund. Related to that, the NWF should invest together with other financiers. One co-investor could be the Russian Direct Investment Fund. Its operations have raised the possibility that foreign sovereign state funds might be interested in participating in Russian project financing if Russia’s own reserve fund (NWF) took part.

Economy minister Maxim Oreshkin said the economy ministry would like to see NWF assets lent for the purpose of expanding exports of Russian firms. Russia’s Union of Industrialists and Entrepreneurs (RSPP) has also proposed that option in such a way that NWF assets be deposited with banks who would lend the funds onward to support exports.