Russia to draw over $50bln from Reserve Fund

Feb 27, 2015, 3:11 PM EST
 Russian President Vladimir Putin speaks during a joint press conference with Cyprus President Nicos Anastasiades in Novo Ogaryvo State Residence on February 25, 2015 in Moscow, Russia.
Sasha Mordovets/Getty Images

Russia will draw over $50 billion from its emergency Reserve Fund as revenues fall from lower oil prices and Western sanctions. First Deputy Finance Minister Tatiana Nesterenko said on Friday the government would ask parliament to allow the spending of up to 3.2 trillion rubles ($52.36 billion) from the Reserve Fund in 2015, including 500 billion rubles already envisaged in the budget, notes ReutersThe increase means that Russia could spend well over half of the fund, currently worth $85 billion, in a single year - a rapid run-down of the fiscal buffers that underlines the precarious state of government finances. Russia is presently revising its budget for this year, which was based on the assumption the oil price would be $100 per barrel - well above its current level of around $60 per barrel. Ministers have previously said the budget will now assume an average oil price of $50 per barrel.

The Wall Street Journal writes that in addition to tapping the fund—money the government put aside in the years when oil prices were high—spending by ministries and departments will be cut 10% to keep the deficit from growing too much, Finance Minister Anton Siluanov said Friday. President Vladimir Putin has also cut salaries for workers in the Kremlin by 10%, Interfax news agency reported, citing presidential spokesman Dmitry Peskov. And in another sign of how strained relations with the U.S. and Europe over Ukraine are reverberating in the economy, Russia signaled it would consider allowing Chinese investors to take majority stakes its strategic oil and natural gas fields, reversing years of opposition.

Russia is on the brink of recession as the price of oil, which together with natural gas accounts for about half of state revenue, fell to the lowest since 2009, writes Bloomberg. The effect was compounded by sanctions the U.S. and its allies imposed after President Vladimir Putin annexed Crimea from Ukraine a year ago. The Economy Ministry estimates gross domestic product will shrink 3 percent this year if oil prices average $50 a barrel. The Reserve Fund, which five years ago allowed the government to finance its first deficit since the country’s 1998 default, is included in foreign-currency and gold reserves.

The combined value of the stockpiles fell more than a quarter in the past 12 months to $364.6 billion on Feb. 20 as the Bank of Russia used its reserves to temper the ruble’s decline. The currency dropped 46 percent to the dollar last year, the second-worst performance among more than 170 currencies tracked by Bloomberg after the Ukrainian hryvnia. Declining international reserves were one of the factors cited last week by Moody’s Investors Service as it followed Standard & Poor’s in cutting Russia’s credit rating to junk.