Russia is facing depletion of the National Welfare Fund: what will the state do when financial reserves come to an end?

The Ministry of Finance allows the National Welfare Fund (NWF) to be spent in 2024 when the price of oil falls, but is not ready to reset it to zero and “sit without a penny in reserve,” said Finance Minister Anton Siluanov. But what to do if the money runs out and you can’t go to the National Welfare Fund for your nest egg? The chief researcher at the Institute of Economics of the Russian Academy of Sciences, Doctor of Economic Sciences Igor Nikolaev, spoke about the prospects for resetting the Fund and the possible consequences of MK.

-NWF – what amounts are these?

-In total, the National Welfare Fund will have 11.8 trillion rubles at the end of the year.

-What resources can the government manage from the National Welfare Fund?

-The liquid part of the National Welfare Fund is 4.7 trillion rubles. (about 2.8% of GDP at the end of 2023). The liquid part is the money that can be used to cover the federal budget deficit. Some of the funds cannot be managed due to international sanctions. The liquid portion can be spent. If the Minister of Finance allows this possibility, then the budget situation will still be tense and the deficit will be larger than planned.

-Siluanov emphasized that the department does not intend to bring the situation to the point where there is no liquid part left at all. What factors can lead to the reset of the National Welfare Fund and what are the consequences?

-First of all, this is a lack of income. If there is a shortfall in income, then the budget will have to be balanced somehow. The National Welfare Fund remains a source with which one can make ends meet. Why might income be lost? We understand that this is related to oil and gas revenues. We are getting off the oil needle and the share of income is declining. It turns out that we are losing such an important source of revenue. The global situation is not doing very well. The economy is slowing down and this is putting pressure on demand. Plus international conflicts. From the point of view of fundamental factors, the situation is unfavorable. As a result, there is a lack of income, and, consequently, risks for the National Welfare Fund.

-Evaluate the safety margin of the National Welfare Fund?

-The liquid part of the National Welfare Fund will be sufficient for 2024. The main risks move to 2025-2026. This follows from the three-year federal budget, which talks about cuts in spending after 2024.

-In your opinion, the liquid part of the National Welfare Fund will be sufficient for 2024. What if we use up this part? Where to get funds in 2025, for example?

-It is not without reason that proposals for privatization appear in the government. And of a very serious nature. The state announces that it is ready to part with certain stakes in a number of companies. It turns out that the authorities are looking for additional sources. Privatization is one of them. Another opportunity is to cut costs. It is logical that when there is not enough income and the nest egg runs out, you have to cut expenses. The adopted budget already speaks about this. But the risks of greater cost cuts cannot be ruled out. The next possible consequence is an increase in the tax burden, which is extremely undesirable. All these measures are ambiguous in terms of consequences.

-Is it impossible to estimate how much additional funds privatization can bring?

-You understand correctly. The uncertainty of the economic situation is extremely high. For now there is only an idea.

-If we talk about a possible reduction in budget expenditures, what items could be distributed first?

-First of all, investment items will suffer—primarily construction. If defense and social spending are reduced, it will be in the next place.

Help “MK”

The National Welfare Fund is a “safety cushion” that allows the state to compensate for the loss of oil and gas revenues in the event of a sharp drop in oil prices and to fulfill all social obligations assumed.

At the beginning of December 2023, the liquid part of the National Welfare Fund amounted to 6.75 trillion, 2 trillion more than at the end of the month. It includes 3.268 billion euros, 279.8 billion yuan (35 billion euros), 1.19 billion rubles and 508 tons of gold. A year ago, the NWF accounts with the Bank of Russia contained 45 billion euros, almost 5 billion pounds, 693 billion yen, 309 billion yuan and 526.7 million rubles. At the end of the year, the available funds of the National Welfare Fund will amount to 4.7 trillion rubles.