The National Welfare Fund (NWF) has recently been mentioned often – both by professional economists and people far from finance. There is a reason for this: there is a “dead weight” (as many believe) in the government’s money-box almost 14 trillion rubles. Therefore, when it comes to some social steps that the state could have taken, but does not take – for example, the payment of “helicopter” money to everyone as support in a pandemic or indexation to working pensioners – they immediately recall these trillions. Whether the authorities can send them for such purposes or the funds of the NWF have a different purpose, “MK” figured out with the help of experts.
The size of the National Wealth Fund, as of November 1, is 13.9 trillion rubles. For comparison: the annual expenditures of the federal budget of Russia are approximately 21 trillion rubles. Such funds as our NWF are called sovereign funds in the world. They are found in almost all countries that produce hydrocarbons and trade in oil. The largest of them – in Norway, Saudi Arabia, Qatar – represent a reserve of funds that the state places in various assets in case of a sudden crisis and to guarantee the fulfillment of social obligations. The Russian NWF is formed from the revenues of the oil and gas industry. Large domestic companies – exporters of hydrocarbons pay taxes to the federal budget. This is called an oil and gas transfer, which is spent on paying off federal budget expenditures. Funds, which remain after the oil and gas transfer as a result of a favorable pricing environment, are sent to the NWF. However, the main question now is not how the NWF is formed, but how it is spent.
The NWF in Russia appeared on February 1, 2008 when the previously existing Stabilization Fund was divided into two structures: the National Welfare Fund and the Reserve Fund. Initially, it was organized as a social resource, or a “fund for future generations”. He had to ensure stable pension payments for many years to come. The Reserve Fund took over the functions of the Stabilization Fund, that is, it was used as a financial “safety cushion” for the federal budget. Initially, 783 billion rubles were credited to the accounts of the NWF. Later, when oil and gas revenues exceeded the standard amount of money of the Reserve Fund and oil and gas transfers, the surplus was sent to the NWF. The normative size of the Reserve Fund was approximately 7% of GDP, and it was determined annually in the federal budget.
In 2017, the resources of the Reserve Fund were used up and the fund was closed. Now, of the sovereign wealth funds in Russia, only the National Welfare Fund remains. “The NWF was originally conceived as a certain insurance” cushion “for the pension fund, allowing to avoid a shortage of funds in the event of economic instability and falling oil prices, – says Ivan Belkin, General Director of Label Home Inc.… “Since nearly 40% of our budget is made up of oil and gas money, it is critical to protect vulnerable segments of the population from the shortage of funds for pension payments.” That is, during periods of global financial crises and a sharp drop in oil and gas prices, the funds of the NWF are called upon to plug holes in the budget. At the same time, the fund itself is replenished due to excess profits from customs duties on the export of raw materials and by-products of its production, and also due to the tax on the extraction of raw materials.
At the time of the organization, the NWF also had a strategic goal of the international level. “One may recall that one of the essential tasks of the NWF was to create a good global image,” recalls Alexander Razuvaev, a member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers . – International agencies Moody’s, Standard & Poor’s and Fitch should have raised our country rating in connection with such an impressive size of the NWF. But they do not look at us very well because of geopolitics, and their position, their biased assessments are a form of sanctions. ” With such reserves, Russia’s sovereign rating should be two or three positions higher, the expert emphasizes.
Now the NWF solves the internal economic problems of the state and is at the same time a savings and stabilization fund. For example, in 2018–2019, 9.68 billion rubles from the NWF were used to co-finance people’s voluntary pension savings. And to cover the deficit of the Pension Fund in 2018, 1.1 trillion rubles were spent from the fund.
Is it a rainy day?
This November, the State Duma adopted a bill that raises the limit on NWF savings from 7% to 10% of GDP. This is the threshold above which the funds of the fund can be invested in the economy. In addition, a limit was set on spending funds in the amount of 2.5 trillion rubles over the next three years.
The decision to change the cut-off threshold for the NWF immediately caused a lot of misinterpretation and speculation about how the government actually assesses the situation in the Russian economy. “It’s best to live through difficult times when there is a big stash for a rainy day,” explains Igor Nikolaev, Doctor of Economics… – But here the question arises: hasn’t this very black day come now? The pandemic continues, it is not yet clear when the state will finally cope with its consequences. And at the same time, the authorities decide to put even more money in the box. There is a suspicion that the authorities know something about the future and that all their talks about the crisis ending soon are just words, but in reality things are much worse. ” There is no certainty that the economy is recovering from the pandemic, and therefore it is necessary to save further. There are fears that a rainy day has not yet arrived, and the worst is yet to come, the expert notes.
“The increase in the cut-off threshold to 10% of GDP is due to government concerns, possible alternative scenarios for the development of events and the risks of the global economy,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies.… “They are all formulated in the regulations on the monetary policy of the Central Bank: there is no secret here.” First, the pandemic may continue, and money may be needed to overcome its consequences. Secondly, the acceleration of inflation in the world is already noticeable. In Russia, by the end of the year, it will most likely amount to about 8%. News from the US says that there too, food inflation in October exceeded 6.2% and reached its highest in 30 years. There are concerns about rising prices from manufacturers in China. As a result, inflation from a local Russian history threatens to turn into a global plot of the world economy, with which everyone will have to live in the next 3-5 years. The third threat is the growth of the dollar. If the Fed starts raising rates ahead of time, then the Ministry of Finance faces the risk of exchange rate losses. And the fourth negative scenario is the possible global financial crisis of 2023. Central banks in all countries will react to inflation by raising rates, and this will lead to problems for all borrowers who borrowed money from the market, which will provoke a new debt crisis. In such conditions, the Russian authorities should have an “airbag” – including for the payment of pensions. The 10% cut-off is offset by spending 2.5 trillion rubles from the NWF on infrastructure – this is a very good stimulus for the economy, Maslennikov emphasizes. In such conditions, the Russian authorities should have an “airbag” – including for the payment of pensions. The 10% cut-off is offset by spending 2.5 trillion rubles from the NWF on infrastructure – this is a very good stimulus for the economy, Maslennikov emphasizes. In such conditions, the Russian authorities should have an “airbag” – including for the payment of pensions. The 10% cut-off is offset by spending 2.5 trillion rubles from the NWF on infrastructure – this is a very good stimulus for the economy, Maslennikov emphasizes.
In the future, specific problems may arise due to the global energy transition – from traditional hydrocarbon raw materials to renewable energy sources. “The Russian government has raised the threshold of the liquidity part of the NWF to 10% of GDP, since with the transition of most developed countries to a carbon-neutral economy, long-term budgetary risks increase: after all, a third of the federal budget of Russia is oil and gas revenues,” says a member of the board of the Club of Lawyers and Legal Advisers of the CIS “Sergey Talanov . These risks need to be mitigated, which is what the government is doing.
The draft state budget for 2022 and the next two years predicts that by the end of next year the NWF funds will amount to almost 16.5 trillion rubles, and by the results of 2024 they will reach 23.3 trillion rubles. In other words, the Russian egg-box still has room to grow. “Whether this goal will be achieved depends primarily on the persistence of high oil prices, as well as on the dynamics of exchange rates and the structure of assets in which the funds of the NWF are placed,” notes Natalya Milchakova , deputy head of the IAC Alpari… The expert drew attention to the fact that the state refused to keep NWF funds in dollars this year and transferred part of the assets to gold, the rest are kept in Russian rubles, euros, British pounds, Chinese yuan and Japanese yen. The fact that part of the funds is kept in rubles shows that the state trusts the national currency, and also dispels the myth, popular in social networks, that the Ministry of Finance is deliberately weakening the ruble in order to support the dollar, the expert says.
Over the past 13 years, not only the structure of the fund has changed, but also the purposes for which its funds were directed. Back in 2015–2016, the state from the NWF helped finance the project of the year-round trade port Sabetta and the construction of the Yamal LNG plant. The total investment in the project for the construction of a plant for the production of liquefied natural gas in the northern latitudes amounted to almost $ 27 billion, of which $ 2.3 billion is from the NWF. According to Milchakova, these investments paid off, allowing Russia to become a fairly large exporter of LNG to Europe and Asia.
Currently, a plan of projects has been approved, which will be funded from the NWF until 2024. These include the construction of the M12 Moscow-Kazan highway, projects of the Russian Railways, reforming the housing and communal services fund, and renewing the Russian aircraft fleet. “The total cost of all projects may amount to 9 trillion rubles, 1.6 trillion rubles are planned to be allocated from the NWF, and the difference is planned to be covered by private investments,” Ivan Belkin analyzes the planned spending.
The Russian government plans to finance from the NWF the largest infrastructure projects of Avtodor, Russian Railways, Transmashholding, says Sergei Talanov. “And this is correct: if you spend your money-box, then on projects that give the maximum effect in the long term, develop infrastructure or human capital,” he says. There is no doubt that the country needs to modernize its railway and transport network. These projects will create new jobs and, in the long term, will lead to GDP growth of about 1%. The main thing is to increase the level and quality of life of the population, the expert is sure.
How not to “rip” the stash
With all the experts’ unanimity of opinion on the importance of the NWF, the point of view on whether it is worth directing its funds to social benefits, they differed. Some believe that since this resource was created for the “national welfare”, then it is necessary to direct money to it in the first place. “It would be nice to send at least part of the NWF money to the Pension Fund to index pensions to all pensioners in an amount exceeding inflation, or to pay pensions to working pensioners,” says Igor Nikolaev. – They have not indexed it since 2016, and this is a direct violation of the Constitution – this could be done with money. Let’s improve the national welfare in accordance with the name of the fund. ” According to the expert, social spending should be a priority. People need to live “here and now”, and not wait for an eternally black day, which will either come, or tomorrow won’t come. In addition, there is a risk of “ripping apart” this stash for all sorts of projects that are not of primary importance or those that are lobbied by “especially close” officials and businessmen, the expert warns.
However, this point of view is not shared by everyone. “In my opinion, the NWF does not need to spend money on current social payments, there are other sources for this,” Nikita Maslennikov argues. – There is the Pension Fund, whose annual expenditures will amount to 3.5 trillion rubles, there are additional sources from the government, where the balances from the funds “not selected” by the ministries are credited. And the NWF is “long” money, and it would be better spent on infrastructure projects. At the same time, the historical role of the NWF as a stabilizer of the Pension Fund has not disappeared, but it is better to take money from other sources for social needs. I am in favor of ‘long’ investments that develop the infrastructure. ” Such investments in the economy have a multiplier effect, and all citizens benefit from this, because the implementation of large projects also implies the creation of new jobs, and the development of related segments of small and medium-sized businesses. And social spending has a downside – this is the acceleration of inflation, so in this area you need to think strategically and act very carefully, the expert urges.
How the size of the NWF of Russia has changed
January 1, 2017 4.359 trillion rubles
January 1, 2018 3.753 trillion rubles
January 1, 2019 4.036 trillion rubles
January 1, 2020 7.773 trillion rubles
January 1, 2021 RUB 13.546 trillion
October 10, 2021 RUB 13.898 trillion
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