Translated material
How to spend trillions: a new government idea could strengthen the ruble and trigger inflation
By the end of 2019, Russia's National Welfare Fund will reach a level beyond which the surplus is allowed to be spent. As long as oil is above $40, we are talking about trillions of rubles a year, and the government has already begun to fight over how to spend them, writes Vedomosti . The Central Bank fears that this could drive up inflation and return the Russian economy to dependence on fluctuations in oil prices.
- The National Welfare Fund is a piggy bank of windfall profits that the budget receives from oil exports. According to the budget rule, oil windfall profits are sent there - money received by the budget from the sale of oil at a price of more than $41.6 (this is the figure for 2019; it is indexed annually by 2%). According to the latest forecast of the International Energy Agency, the average price of Brent oil in 2019 will be $67.
- According to the law, the money accumulated in the NWF cannot be spent until the moment when its volume exceeds 7% of GDP - up to this point they are invested in reliable foreign exchange assets. According to the forecasts of the Ministry of Finance, this will happen by the end of 2019. Now the NWF has 3.8 trillion rubles (3.6% of GDP), by the end of the year the Ministry of Finance expects 7.9 trillion rubles. In 2020, it will be possible to invest 1.8 trillion rubles from the NWF, and 4.2 trillion rubles in 2021, a federal official told Vedomosti.
- Money from the NWF can help fulfill trillions of national projects and achieve the acceleration of Russian economic growth that Vladimir Putin is demanding. The first projects where this money will go have already been determined - this is the processing of ethane-containing gas and the production of liquefied gas in the Ust-Luga region. This is not a waste, but an investment in order to get 10 rubles of private investment for 1 ruble of money from the NWF, said Finance Minister Anton Siluanov. Part of the funds is supposed to be invested abroad, for example, through lending to buyers of Russian exporters, as Economics Minister Maxim Oreshkin suggested.
- Officials of the economic bloc doubt the reliability of investing reserves in Russia, but they understand that this cannot be avoided. “Obviously, it will not be possible to completely repulse the attacks on the NWF, and part of the funds will have to be invested in the country, but we need to immediately agree on exactly how and in what projects so as not to spend everything that has accumulated in excess of 7%,” one federal official told Vedomosti. official. The money may not be well spent, but it would be better to have a road or a bridge built than to give it away to support Syria and Venezuela, says another, recalling $3 billion from the NWF spent in December 2013 to support Viktor Yanukovych.
- But plans to spend the money of the NWF in Russia do not like the Central Bank. on Friday Elvira Nabiullina said that the start of spending trillions from the NWF could lead to higher inflation and a sharp one-time appreciation of the ruble, reduce the competitiveness of Russian goods and weaken the stabilizing effect of the budget rule. Nabiullina suggested thinking about increasing the 7% threshold, which was set in 2017 when conditions were different. The Ministry of Finance promised to consider the proposal. Maxim Oreshkin, commenting on Nabiullina's proposal to Vedomosti, responded in absentia to Nabiullina with his favorite argument: the main pro-inflationary factor now is the explosive unhealthy growth of consumer credit, and future problems can be argued about later.
What do I get from this?
The outcome of the dispute over the NWF money will most directly affect your wallet - if supporters of large-scale spending win, you need to prepare for rising prices and strengthening the ruble.