The inviolable NWF in December fell by a trillion rubles: the forecast is disappointing

The Ministry of Finance announced a decrease in the National Welfare Fund (NWF). According to the agency, in December 2022, Russia’s reserve “jewel” decreased by 1 trillion rubles. The day before, President Vladimir Putin during a meeting on the economy said that the federal budget deficit amounted to 2.3% of GDP. Such a lack of money needs to be compensated, and it was decided to uncork the “pod” prepared for a rainy day. Will it be possible to replenish the NWF this year and how long will it last if the government continues to spend funds at such a pace, experts told MK.

The strategic reserve, considered inviolable, began to “lose weight”. As of December 1 last year, the volume of the National Welfare Fund, as reported by the Ministry of Finance, amounted to 11.38 trillion rubles, which corresponds to 8.5% of GDP or $186.48 billion. 10.43 trillion rubles. In dollar terms, the volume is $148.35 billion. In other words, the reduction of the NWF amounted to almost 955 billion rubles. However, the forecast for 2023 is disappointing: the sanctions will intensify, become even more painful for the state treasury, because the oil and gas sector will be more deeply affected, and the budget deficit may increase. Can it happen that the National Wealth Fund will be reset to zero or the authorities will find other ways to replenish the treasury? With this question, “MK” turned to the experts.

Mikhail Vasilyev, chief analyst at Sovcombank:

“The Ministry of Finance will replenish the NWF this year if the volume of oil and gas budget revenues exceeds the level of 8 trillion rubles.

In the baseline scenario, we expect the volume of oil and gas revenues of the budget this year to be 7.5 trillion rubles, that is, the Ministry of Finance will sell yuan from reserves throughout the year to compensate for the shortfall in oil and gas revenues of the budget.

In addition, we expect that part of the NWF funds this year will also go to finance the budget deficit (our forecast for the deficit is 3.3 trillion rubles). According to our estimates, another 2 trillion rubles. from the FNB will go for these purposes. In total, we believe that the NWF will decrease by another 2.5 trillion rubles this year. The liquid part of the NWF will decrease to 3.6 trillion rubles.

Theoretically, it will be possible to replenish the NWF this year in the event of a favorable situation in the commodity markets (high oil and gas prices), in the event of an increase in Russian exports (acceleration of global economic growth, easing of sanctions, reduction of the Urals discount to Brent), or in case of more weak exchange rate of the ruble (will increase budget oil and gas revenues). However, we do not consider these scenarios likely.

According to our forecasts, in 2024 the budget deficit will amount to 3.1 trillion rubles, and the falling oil and gas revenues of the budget will amount to 0.5 trillion rubles. We expect that 1.5 trillion rubles will be spent from the NWF on foreign exchange interventions and the budget deficit. (The rest of the budget deficit will be covered by the debt market).

The liquid part of the NWF by the end of 2024, according to our forecasts, will decrease to 2.1 trillion rubles. Recall that the NWF is a reserve fund that was created in order to spend it in times of crisis. Therefore, we believe that in the face of unprecedented sanctions pressure from the West and the large-scale transformation of the Russian economy, such budget support is necessary and justified. We expect that in 2025 the economy will return to sustainable growth and the NWF will replenish again.”

Georgy Vashchenko, Deputy Director of the analytical department of Freedom Finance Global:

“The National Welfare Fund will be replenished when additional oil and gas revenues come into it and will be spent if there is a shortage. The budget includes an average oil price of about $70 per barrel. Now it is lower. It’s too early to predict earnings – quotes will be volatile this year. It cannot be ruled out that if in the 3rd quarter oil and gas revenues fall behind the plan, then the benchmarks may be adjusted. But it’s too early to worry. In the current conditions, the currency from the reserves is sold – now in the amount of 54 billion rubles per month. The volume of liquid assets in the National Welfare Fund is more than 6 trillion rubles, at the beginning of the year there were more than 300 billion yuan (about half), and the total size of the Fund was 10.4 trillion rubles. Such rates of NWF sales do not threaten. I still believe that the price of oil will rise to the range of $100-130 per barrel of Brent this year on the back of rising demand in China and reduced supplies from Russia to Europe, so there is nothing to worry about.”

Andrey Girinsky, Associate Professor, Faculty of Economics, RUDN University:

“Regarding the replenishment of the National Wealth Fund in the coming year, it is rather difficult to say anything at the moment. Much depends on the external and internal situation in the oil and other markets, as well as the sanctions factor. Replenishment is theoretically possible, however, this will happen only in the event of a significant change in the situation in a favorable direction. To date, no such trend is clearly visible.

If it is not possible to replenish the NWF in the current or next year, this does not necessarily mean that there will be a regular withdrawal of funds from there. At the same time, if we assume that in the future the budget deficit will be covered partially or completely at the expense of the NWF, and the Fund’s funds will be needed to modernize sectors of the economy and expand budget allocations in the total amount of 1 trillion rubles annually, then formally, funds from “Egg capsules” can be enough for a fairly long period, much longer than the next three years.