Future Generations Fund

Today, when gold and foreign exchange reserves have exceeded $300 billion, it may seem that nothing threatens the country’s financial situation. In my opinion, this is a serious mistake.

The Ministry of Finance is currently maintaining existing budget obligations. And it will keep them in the next three years - in the three-year budget plan that should be presented in April. But life doesn’t end after three years.

By 2005-07, it became clear that the margin of safety gained from conservative fiscal policies - policies in which the government does not assume obligations that would have to be paid to successors - had been exhausted. You can adopt a maternity capital program. Moreover, it has serious reasons. And you really don’t have to pay anything for it for a number of years. But you'll have to pay later.

It is possible to adopt a project for the construction of a high-speed highway from Moscow to St. Petersburg. And even finance it. But there are no calculations anywhere about how much its operation will cost later. It is possible to adopt a program for creating livestock complexes using preferential loans, the interest on which is covered by the state budget, and put them into a three-year period. And who will cover these costs over the coming years?

Great idea for computerizing schools. But here the question arises: what, when the project ends in two years, will it be possible to write off the electronics and disconnect schools from the Internet? Has anyone calculated how much this will cost next? Such decisions have long-term consequences, and these consequences must be assessed.

All of the above projects are not infinitely significant financially. But they pose very serious problems for our country. Some of them are related to the fact that the characteristics of the demographic transition in Russia, set by the industrialization model implemented in the country, predetermine a decrease in the number of workers per capita. This is compounded by low pension payments by all international standards. This sets a downward trend in the replacement rate - the ratio of the average pension to the average salary. Our “usual” ratio was 30-35%, but by 2005 it had already dropped to 27%. If we are guided by inertial forecasts, then it will decrease to 20% by approximately 2015 and to 16% by 2020.

Today, everyone is most interested in the relationship between pensions and living standards, but our GDP makes it possible to solve this problem quite easily. The very concept of the importance of the replacement rate in social policy is not an invention of some official from the International Labor Organization.

This is a social reality due to the fact that when a worker retires, his level of income should be comparable to his usual level of income. It is impossible to change this kind of reality without major social cataclysms.

Another unpleasant circumstance is that a very large part of our income - about a third of the budget - depends on oil and gas. No one really knows how to predict them. The Institute for Economics in Transition (IET) specifically calculated, at the request of the authorities, the worst-case scenario associated with a decline in oil prices. It turns out that by 2009, in any case, it will be possible to avoid a crisis like the one that occurred in 1998. But life does not end in 2009. In addition to the fact that oil revenues are unstable, they have another unpleasant feature, which the Ministry of Finance quite rightly drew attention to. Even at given prices, they tend to decline.

There are several factors. Firstly, also as a result of the actions of the authorities, the rate of production growth has dropped significantly. Second, as economic growth occurs, GDP measured at purchasing power parity (PPP) approaches GDP calculated at current exchange rates. This means that export earnings, calculated at PPP, are declining. Thirdly, we get 7% of GDP from energy exports. But our domestic demand for energy is growing, so we cannot predict that we will be able to maintain the same share of exports at the current level.

Of course, predictions that oil and gas will run out have been made more than once. And they failed repeatedly. But the decline in oil production in countries where fields were discovered long ago is a reality that many countries face. And when discussing the country’s financial problems, we must keep in mind that oil production will begin to decline in the early 20s, and gas production will stabilize in the early 30s. But more than a third of our budget revenues depend on this. And we are also faced with an increasing burden on the pension system associated with the aging population.

In my opinion, the fact that in the long term, obligations related not even to national projects, but simply to the aging of the population will grow, while sources of income are declining, is the main strategic problem of the country.

The question arises what to do about it. First of all, it is worth noting that we created the Stabilization Fund at an extremely timely time - just before the 2004 jump in oil prices. This is a very important tool that provides the basis for financial stability. Rumors about its insane size are very common. But we are not the only country that depends on the hydrocarbon market. There are more developed countries with the same problems. The UN considers a more advanced indicator than GDP - the human development index. According to this indicator, the most developed country is Norway. There, like us, there are problems due to dependence on the world hydrocarbon market. At the same time, it is difficult to believe that for many years now, in the most developed country in the world, an absolutely irresponsible bunch of politicians have been in power, squandering the people's property.

In Russia, the Stabilization Fund accounts for 9.9% of GDP. In Norway, a similar fund, which really began to replenish in 1996, amounts to 100% of GDP. Conversations about the fact that the Norwegian government is completely in vain accumulating such funds were conducted during all parliamentary campaigns in this country. However, the elite agreed that in light of the same problems (aging population, long-term prospect of declining incomes), it makes sense to accumulate significant financial reserves. And use them, in particular, in reforming the pension system.

For example, in order to remove the problem of double payment associated with the fact that when switching to a funded system, the same generation must pay into the pension system twice - for themselves and for existing pensioners. This problem was solved by increasing reserves to 100% of GDP and placing them in reliable financial instruments at 4% per annum. This 4% of GDP is precisely the stable regular income that made it possible to solve the problem with the pension system. If you look at our forecasts, this is the 4% of GDP that is necessary to maintain the replacement rate at the usual level. And for this we need savings amounting to 100% of our GDP. Hence the first and natural conclusion: we need to transform the current Stabilization Fund into a Fund for Future Generations, a pension fund and a transition on this basis to a funded system, extending it not only to those age groups that are accumulating pensions today. At the same time, we are not talking about current payments, but about funds that will ensure the stability of the pension system, so that this will not entail inflationary consequences. This is the first line of defense.

The second is this: no one can guarantee us that high oil prices will persist for a long time. Therefore, there is no need to delay the build-up of reserves from the current 10% of GDP to at least 50%, or better yet, to 100%. For this we have another resource – state property. Yes, in the early and mid-90s we carried out privatization under the most difficult conditions. But now we have financial stability, credit ratings are growing, which has radically affected the capitalization of our companies. Recently, steps have been taken to increase the state's share in various companies. It is difficult to say that they helped the development of the national economy. The debt of state-owned enterprises in the oil and gas sector is approximately 20 times higher than the debt of the same private companies.

According to existing estimates, without real estate, without unitary enterprises, without foreign property - only the value of shares listed on the market of state-owned companies amounts to 35% of GDP. This is approximately what we need to ensure the sustainability of the pension system in the long term. Hence two natural proposals: transform the Stabilization Fund into the Fund for Future Generations and use for the same purposes the proceeds from leisurely privatization, carried out at market prices and at the most favorable moments for this.