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Saturday, February 17, 2018

Saved for a rainy day reserves are being rapidly depleted

Russian reserves have significantly thinned in the Reserve Fund remains less than a trillion rubles. However, the country has more national welfare Fund, which houses more than 4 trillion rubles. How critical is the situation with the reserves and under what conditions this year, Russia will again be able to spend, and to save money for a rainy day?

Last year, Russia has managed to stay relatively calm thanks to its own reserves. But the reserves, as expected, seriously depleted – almost two times for the year 2016. Russia has two sovereign “potbelly” – the Reserve Fund and national welfare Fund.

“With the price of oil is $ 65 to the Finance Ministry do not need to spend reserves to Finance the budget”

The first thinned considerably. In the Reserve there are only a 0.97 trillion roubles, as compared to 3.64 trillion rubles at the beginning of the year. For a year he was deserted by 3.7 times. However, the situation is not critical, as these costs were anticipated and planned by the Ministry of Finance.

In the law on the budget stipulates that the Ministry of Finance in 2016 can spend from the Reserve Fund to Finance the budget of 2.14 trillion rubles, in the end, he spent 2.1 trillion. Therefore, the balance at the year end was as expected, Finance Minister Anton Siluanov. Previously many experts and analysts had estimated that the Reserve Fund may be exhausted in the years 2017-2019.

On the other hand, the government is still national welfare Fund (NWF), which over the year has shrunk by 0.86 trillion (due to ruble appreciation), but there is still a substantial amount of 4.36 trillion.

Interestingly, in the amount of both the sovereign Fund for 2016 decreased by 3.5 trillion rubles. At the same time 1.4 trillion was lost due to the strengthening of the ruble by 20% in result of revaluation of balances in foreign currency accounts of funds in securities, stored there in dollars, euros and pounds sterling. So, the Reserve Fund has lost from the strengthening of the ruble 531,5 billion rubles, NWF – 861,3 billion. When the ruble is growing, reserves are declining.

If the budget does not receive additional revenues, available reserves enough for at least a year with economical approach. However, there are several factors that say that in the next two years Russia will have as additional income and significant expenses.

First, the Russian government continues the privatization process. At the end of 2016, the budget received additional income from the sale of 19.5% of Rosneft shares. Secondly, this year is expected to increase oil prices on which Russia can also earn extra money. On the other hand, in the 2018 presidential elections, so it is difficult to expect spending cuts before the election.

“Stretch” provisions is possible only by reducing costs. It will have to abandon the financing of important investment projects, reduce spending on defense and security, cut funding for social programs. It is unlikely that the government will agree to this before the election of the President of Russia in 2018,” – said the Deputy Director of analytical Department of company “Alpari” Natalia Milchakova.

Here can help oil prices that could provide additional income to the budget. The current version of the budget assumes the deficit to 2.75 trillion rubles, while 37% of budget revenues – oil and gas. “The price of a barrel of oil in rubles envisaged when planning the budget, to 2700 rubles. In fact a barrel of oil now costs around 3250 rubles, that is 20% more. If this situation continues, the budget deficit this year will be less than expected. When you implement the optimistic scenario, the dynamics of oil prices, when the bottom on the oil market passed in January of 2016, the pace of depletion of reserves in 2017 will be minimal, and in 2018 it is fair to expect the beginning of a gradual restoration of state reserves”, – said Vasily Koposov from “KIT Finance Broker”.

“If the average annual oil price in 2017 will remain at least at the current level of $ 54 per barrel (in 2016 the average price was approximately 44,8), by the end of the year the budget can receive about 700-900 billion rubles of additional revenue, and if the average annual oil price will reach about 65 dollars, the state budget will receive about 2 trillion rubles of additional revenues,” he considered Milchakova. In the budget for 2017 laid down the price of oil 40 dollars for barrel.

The planned expenditures of the Reserve Fund and national welfare Fund in 2017 should reach 1.8 trillion rubles. This means that when the price of oil $ 65 per barrel, the Ministry of Finance do not need to spend reserves this year to Finance the budget or the government can increase spending. And with oil prices of $ 54 spending of the reserve funds will be almost twice less than planned.

Georgy Vashchenko of IR “freedom Finance” believes that the price of oil above $ 60, the state should theoretically begin again to replenish the reserves. Though at a slow pace – not more than $ 10 billion a year.

However, when the price of oil below 60 dollars all the free resources are more likely to go to support the economy, especially in the social sector and strategic enterprises, said Vashchenko. “The reserve Fund was created in case of acute crisis, in order to extinguish it quickly. And it is in the nature of protracted. Despite the formal exit from recession, the growth of production and consumption is unstable, the economy is vulnerable to shocks. There is a growing deficiency of regional budgets and the pension Fund,” the economist reminds.

Under shock scenarios, says Vashchenko, if the price of oil is below $ 40, free reserves can be spent within a half to two years, although the state will try to do it sparingly. In this case Russia will start to increase the volume of external and internal loans, but the increase in leverage above 20% of GDP in the course of going reserves.

However, while in the pessimistic scenario, few believe. More likely the average level of prices for oil – $ 50 per barrel. In this case, the reserve funds will not be lengthened considerably, but should not significantly depleted.


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