Translated material
Accumulation system
The Ministry of Finance is clarifying the mechanism for managing Russia's reserve funds
In the near future, the fate of two all-Russian piggy banks - the Reserve Fund and the National Welfare Fund (NWF) - will be decided. The government will have to decide who will manage them and what to spend the money on. Until recently, it seemed that the funds would remain with us for decades, or at least as long as they were led by the current head of the Ministry of Finance, Alexei Kudrin. But new times came quickly, and now the country’s chief financier himself declares: you need to start spending in 2010, and after 2027, all that’s left of the all-Russian nest egg will be a “steering wheel.” This is still almost 20 years away, and during this time both a new specialized state agency and, possibly, Vnesheconombank will have time to have a hand in managing the funds.The Ministry of Finance last week reported on the activities of national funds. The profitability of the placement of the Reserve Fund and the National Welfare Fund in the period from January 30 to August 15 of this year in dollar terms amounted to 2.3% per annum, said Deputy Head of the Ministry Dmitry Pankin. The return on the portfolio of assets invested in euro instruments was 2.79%. “We specifically calculated that the income on the bonds of Fannie Mae and Freddie Mac is estimated at $74 million. That is, there were no losses, we received income,” the official rejected all accusations of irrational investments.
Overall, since their inception six months ago, the volumes of both funds have grown slightly in dollar terms, showing minor fluctuations within the period. As of August 1, 2008, the Reserve Fund amounted to $129.68 billion, or RUB 3.040 trillion. (as of February 1 - $125.19 billion, or 3.057 trillion rubles), the National Welfare Fund amounted to $32.69 billion, or 766.48 billion rubles. (as of February 1 - $32 billion, or 783.31 trillion rubles). The increase was achieved through investments and changes in exchange rates. But the Reserve Fund did not reach the required 10% of GDP. Therefore, on August 19, the Ministry of Finance transferred 420 billion rubles. to replenish this fund. This became possible after the oil and gas transfer to the budget reached the value fixed in budget legislation - 3.7% of GDP. Now the Reserve Fund has reached its standard value, which means that from now on all oil and gas revenues coming to the budget until the end of the year will go to replenish the National Welfare Fund. 18 billion rubles. has already been transferred to this fund. “Further, in the remaining months, the main flow of oil revenues will be credited to the National Welfare Fund. We believe that by the end of the year serious amounts will be accumulated there,” said Dmitry Pankin. According to his estimates, the volume of this fund by the end of 2008 should be about $100 billion.
Mr. Pankin's boss, Deputy Prime Minister and Finance Minister Alexei Kudrin, already has ideas on what to do with this money. The newspaper Vremya Novostey has already written about the reform of the unified social tax and pension system planned from 2010 - the National Welfare Fund is not the last place in it. “We believe that it is necessary to increase and fully assign the National Welfare Fund to the Pension Fund. A continuous permanent transfer from the National Welfare Fund to the Pension Fund should be 0.6% of GDP for the entire period until the fund is spent,” Mr. Kudrin said. The Ministry of Finance considers spending money from the national fund on pensions to be a fair decision.
In order for the National Welfare Fund to last for a longer period, the Ministry of Finance proposes to increase its size by reducing the standard value of the Reserve Fund from the current 10 to 6% of GDP starting in 2010, and directing the remaining funds to the National Welfare Fund. In this case, along with investment income from the placement of funds, the fund will also provide a targeted transfer to the Pension Fund. In some years, investment income will be just 0.6% of GDP, but not always, so the “body” of the fund will also be used. According to the Ministry of Finance's plan, the National Welfare Fund will reach its peak volume in 2013-2014 - 8.1% of GDP, then it will begin to decline and in 2027 will amount to 0.6% of GDP - this will be the last transfer to the Pension Fund. The reserve fund will be maintained as long as oil and gas revenues can provide a transfer of 3.7% of GDP for current budget expenditures. As soon as oil and gas revenues fall below 3.7% of GDP, the Reserve Fund will have to start spending. The Ministry of Finance has calculated that the Reserve Fund will begin to decline in 2020 and will amount to 5.9% of GDP at the end of the year. By 2027 it will also be exhausted.
But in order to provide us at least until 2027, funds must start earning money now. It is clear how the Reserve will do this - its assets will continue to be placed as part of gold and foreign exchange reserves, this responsibility will remain with the Central Bank. There is no such certainty with the National Welfare Fund yet, but by October 1, the Ministry of Finance must prepare and submit to the government proposals for managing the funds of this fund.
Several options are now being considered, but judging by the fact that Mr. Kudrin voiced only one, it is the main one and the most likely to be implemented. The funds of the National Welfare Fund will be divided into several parts and entrusted to various structures. The special government agency will invest up to 40% of the fund's funds in corporate securities. The agency's task will be to conduct tenders for the selection of management companies, conclude contracts with them and further control. It is expected that the share of one issuer in the total portfolio will be limited to 5%, which will ensure greater security for the package. At the first stage, the funds of the National Welfare Fund will be invested in securities of foreign issuers, and after a few years - in Russian ones. So far, when investing within the country, two factors cause concern for the Ministry of Finance - inflation, which may arise in connection with the transfer of money to the market, and the reliability of the market. The remaining funds will continue to be invested by the Central Bank.
But perhaps another part of the funds will be transferred to the management of the Development Bank - Vnesheconombank, which may engage not in financial investments of these funds on the market, but in direct investments. If such a decision is made, then at the first stage VEB’s investments will be directed to foreign projects. The volume of possible investments is also being discussed.