Russia’s sovereign National Welfare Fund (NWF) reached RUB4.8 trillion or $77bn as of end of June 2018, according to the Finance Ministry. The fund added solid $15bn month-on-month as compared to $62.7bn as end of May.
NWF is a sovereign fund previously planned for infrastructure development, social and pension reserve. It was previously matched by twin Reserve Fund, which was mainly a fiscal buffer that was completely depleted for financing the federal budget in 2016 and 2017.
However, as the fiscal outlook improved notably with the growing oil price the Finance Ministry reinstalled the “budget rule” which caps the spending at $40 per barrel oil reference price and channels all the extra oil and gas revenues to purchasing and stocking forex off the market.
Since the beginning of 2018 the ministry acquired about $28bn in this way, and could buy another $35bn by the end of the year. The NWF could thus increase to $140bn by the end of 2018 reaching about 8% of GDP, the analysts surveyed by Reuters believe.
Should the oil prices remain stable, the reserves could reach the peak levels of 2008, when they stood at $252bn or 13.6% of GDP (before being split into the National Welfare and Reserve Funds).
Notably, while about 40% of NWF is already invested in infrastructure projects or deposited on the accounts of state banks and institutions it is unlikely that the steadily growing fund will be tapped more becoming a sizable sovereign buffer.
This is because its main two goals of infrastructure development and pension payments financing are tackled by the government through the establishment of RUB3.5 trillion Growth Fund for infrastructure investment and the long-delayed pension reform and retirement age hike, respectively.