According to officially published data from the Ministry of Finance, the Russian National Welfare Fund in August decreased by $2.24 billion, or 3.07%. In absolute figures, the country's reserves are estimated at $70.69 billion.

A month earlier, reserves lost $3.9 billion, or 5.08%. Thus, the National Welfare Fund of Russia and the Ministry of Finance’s reserves have been reduced for the second month in a row. In June, on the contrary, they increased by $0.58 billion, which is explained by less volatility in the financial and commodity markets.

Russia's National Welfare Fund: a year of decline

The general trend towards a decrease in the value of the country’s reserves has finally taken hold since September 2014. With minor adjustments, it has been going on for twelve months. In total, during this period the country lost $21.03 billion, or 22.9% of the National Welfare Fund.

When analyzing these figures, it is necessary to take into account a fundamentally important point. Today's figure of $70.69 billion is not exactly the amount that the Treasury Department can dispose of at any moment. It's not just the volume of money that matters, but also where it is actually placed.

These numbers, denominated in different currencies, are difficult to understand, but not impossible. First of all, we note that the money is in accounts with the Bank of Russia, and this is a 100% real reserve, available at any time. And also some of them were transferred to one or another structure, mainly to banks with state participation for further lending to the financial and real sectors.

On the accounts of the Central Bank of the Russian Federation, the Reserve Welfare Fund of Russia and the reserves of the Ministry of Finance are placed in three currencies: 20.98 billion US dollars, 29.9 billion euros and 40.3 billion pounds sterling. When converted into one monetary unit at the current rate, it turns out that their real value is $60.8 billion. And, accordingly, although $9.88 billion is listed on the balance sheet, it has actually already been spent for one purpose or another.

The main recipients of money from the National Welfare Fund of Russia and from the reserve fund of the Ministry of Finance are Vnesheconombank, foreign issuers, among which there are those that are not subject to rating requirements for long-term creditworthiness, that is, these are clearly not investments in first-class government loans of developed countries, as well as so-called self-sustaining national projects. In addition, assets are invested, according to the official report of the Ministry of Finance, in preferred shares of credit institutions.

Financing the budget deficit through emissions

A new milestone in the financial policy of the crisis period was emission financing of the budget deficit. Moreover, this is done using reserves. The National Welfare Fund of Russia is also involved in such operations.

The emission financing scheme looks like this today. The Reserve Fund sells currency to the Bank of Russia. As a result, the value of the total position of these two organizations does not change. But at the same time, the Central Bank of the Russian Federation issues the corresponding amount of money and issues it to the Ministry of Finance, crediting it to a single account of the federal budget to finance the deficit.

It is especially worth noting that currency conversion is carried out in such transactions outside the exchange, and remains hidden from market participants until the publication of reports, which are published with a delay of one month.

This scheme was first used, according to information from open sources, in February 2015. Then the National Welfare Fund of the Russian Federation sold 500 billion rubles worth of currency, which ended up being added to the budget and spent on current purposes.

The second time the operation was carried out in July - for 200 billion rubles. The third time, according to information from open sources, in August, for another 200 billion rubles. In total, since the beginning of the year, the volume of emission financing of federal budget expenditures has already amounted to 900 billion rubles.

The Russian budget deficit in 2015 is approximately 3 trillion rubles. According to some reports, it is planned to cover it all with the help of emissions. At the same time, official sources claim that the issue of such an amount will not cause additional pressure on the national currency exchange rate and will not lead to a surge in inflation.

Unfortunately, economic theory says otherwise. Moreover, the amount of artificial increase in the money supply will most likely not have a direct one-to-one impact on prices, but will become a kind of starting point for the inflation rate in the near future.

Russia's National Welfare Fund: how long will it last?

Not a single serious analyst today observes or declares signs of the country emerging from the crisis. If, of course, we do not take into account the official statements of government officials, we must understand that this is their job: to reassure the population and business representatives.

Today, official data indicate that the National Welfare Fund and the Ministry of Finance reserves are formally estimated at 70.69 billion, but in fact, $60.9 billion is available to further support the economy. About $20 billion is spent annually. It should be taken into account that costs may vary unevenly.

The main payments on external debts for the year are due at the end of 2015 and at the beginning of 2016. In the summer, the situation in this regard was less tense. Thus, we should expect an acceleration in the rate of spending of reserves.

As a result, we can make the assumption that the country’s assets as a whole should be sufficient for the coming year. But this is only if two important parameters are kept constant. Firstly, the price of oil, and therefore the volume of replenishment of reserves, will remain at about $50 per barrel. Secondly, no attempts will be made to maintain the exchange rate of the national currency at one level or another. That is, the ruble will continue to fall freely.

At the same time, including thanks to emission financing of the budget deficit, inflation should also remain at a high level.

National Welfare Fund of Russia (NWF) formed on February 1, 2008 after the division of the Stabilization Fund into the Reserve Fund and the National Welfare Fund. The fund is part of the long-term pension provision mechanism for citizens of the Russian Federation. The National Welfare Fund, originally intended to insure the pension system, was kept in liquid instruments and was used to combat the crisis in 2008-2009.

Only part of the National Welfare Fund is part of the gold and foreign exchange reserves of Russia (GFR), since the IMF methodology for accounting for gold and foreign currency reserves requires a quality level of AA - almost equivalent to foreign currency. Therefore, gold and foreign currency reserves include only its part, denominated in foreign currency and placed by the Government of the Russian Federation in accounts with the Bank of Russia, which is invested by the Bank of Russia in foreign financial assets of the required reliability.

Part of the funds of the National Welfare Fund is invested in projects, which is unacceptable in terms of the level of risk and liquidity for gold and currency reserves and is not taken into account in them. Thus, the National Welfare Fund performs the functions of a riskier, but potentially more profitable instrument than gold and foreign currency reserves for the Government of the Russian Federation.

Description

The National Welfare Fund is a part of the federal budget funds that are subject to separate accounting and management in order to ensure co-financing of voluntary pension savings of citizens of the Russian Federation, as well as ensuring balance (covering the deficit) of the budget of the Pension Fund of the Russian Federation.

Management of funds of the National Welfare Fund

The funds of the National Welfare Fund are managed by the Ministry of Finance of the Russian Federation in the manner established by the Government of the Russian Federation. Certain powers to manage the funds of the National Welfare Fund may be exercised by the Central Bank of the Russian Federation.

Formation of the fund

The National Welfare Fund is formed through:

• oil and gas revenues of the federal budget in an amount exceeding the volume of oil and gas transfers approved for the corresponding financial year, if the accumulated volume of the Reserve Fund reaches (exceeds) its standard value;
• income from managing funds of the National Welfare Fund.

On July 14, 2017, the State Duma in the second reading approved a bill on a new edition of budget rules, according to which the funds of the reserve fund are transferred to the ownership of the National Welfare Fund until February 1, 2018. By July 1, the reserve fund amounted to less than 1 trillion rubles, which was supposed to be fully spent according to budget projections.

Accommodation

On April 21, 2010, the Chairman of the Government of the Russian Federation V.V. Putin signed a decree of the Russian Government that until February 1, 2012 the Ministry of Finance will not be obliged to publish on the Internet information about the volumes of funds received into the accounts of the Reserve Fund and the National Welfare Fund, about where they are located and how they are used. However, data continues to be published.

On December 17, 2013, the media reported Russia's intention to place $15 billion from the National Welfare Fund in Ukrainian government bonds. This agreement was reached during negotiations between the Presidents of Russia and Ukraine on December 17, 2013.

However, according to Decree of the Government of the Russian Federation dated January 19, 2008 No. 18 “On the procedure for managing the funds of the National Welfare Fund”: “...Debt obligations of foreign states in which funds of the National Welfare Fund can be placed include debt obligations in the form of securities of the governments of Austria , Belgium, Great Britain, Germany, Denmark, Ireland, Spain, Canada, Luxembourg, the Netherlands, USA, Finland, France and Sweden...”

On December 23, 2013, the head of the Russian government, Dmitry Medvedev, signed a decree changing the procedure for placing funds from the National Welfare Fund (NWF) in debt obligations of foreign states. According to the document, investing NWF funds in foreign government bonds is now allowed on the basis of separate decisions of the Russian government, which makes it possible to invest in securities of states “with a higher level of risk.” This resolution resolved the problem of investing NWF funds in Ukraine.

The structure of asset allocation and the problem of their liquidity

According to the British weekly Economist, as of November 2014, of the $170 billion held in the Reserve Fund and the National Welfare Fund, most of it may be illiquid or unavailable for use in case of urgent need. The Economist expresses doubts about the availability of NWF funds for the urgent needs of the Russian government. The publication notes that as of November, the fund’s funds (about $80 billion) were invested in various long-term projects. According to Sergei Guriev, the means NWF also issued to Vnesheconombank for the construction of Olympic facilities in Sochi and other infrastructure projects. In turn, former Russian Finance Minister Mikhail Zadornov, in an interview with the Dozhd TV channel, said that the possible use of gold and foreign currency reserves could be $200 billion.

At the same time, the opinion of observers expressed in the media is very different from the official reporting of the National Welfare Fund and audit reports.

In accordance with the financial report of the fund provided by the auditors, as of June 2016, the following were placed in securities of class AA- and higher:

• US$19.56 billion
• 20.76 billion euros
• £3.83 billion

These funds are taken into account in gold and foreign currency reserves.

In total, 1.6 trillion rubles (about 34% of the NWF) were invested in risky assets, with debt obligations to the NWF in rubles and foreign currency approximately equally divided. Such assets are divided into loans to Russian banks. The NWF’s reporting, contrary to the opinion of The Economist observers, records only 0.463 trillion rubles directly for relatively risky investment projects. And even the Accounts Chamber believes that the NWF’s risky investments in projects lag behind development plans and almost half of the funds allocated for projects remain in the form of foreign currency.

Risky investments of the fund and their profitability

In December 2014, the Federal Law “On Amendments to the Budget Code of the Russian Federation” was adopted, according to which up to 10% of the funds of the National Welfare Fund can be placed in Russian banks to finance infrastructure projects. On December 30, 2014, VTB Bank already received the first tranche in the amount of 100 billion rubles from the National Welfare Fund, the second tranche in the amount of 150 billion rubles is expected in the first quarter of 2015.

It should be noted that the risk of NWF investments in projects in the form of loans potentially brings income an order of magnitude greater than highly reliable US debt bonds in dollars and EU bonds in euros, since the latter have a yield of about 1% per annum. Since the placement is likely made in short-term bonds in order to be able to immediately receive cash dollars and euros, the income from investing by the National Welfare Fund in the US and EU economies is 0.46% per annum.

At the same time, loans issued by the National Welfare Fund bring it monthly income at a rate of about 6.5% per annum in foreign currency and 23.63% in rubles.

Profits from the placement of assets of the National Welfare Fund will be transferred to the budget.

Dynamics of changes

see also

Notes

1. “The purpose of the NWF”
2. International reserves of the Russian Federation |  Monthly values at the beginning of the reporting date |  Bank of Russia
3. (undefined). www.cbr.ru. Retrieved July 30, 2016.
4. Vadim Visloguzov

Every economy is simply obliged to have a certain margin of safety. As for the history of Russian strength, the next cycle is over today. Initially, the economy of the great state was supported by the Stabilization Fund, created in 2004. In 2008, it was completely restructured and renamed the Reserve and Welfare Fund. He acted as a rational continuation of the “budget development” program created in 1998 to finance large-scale industrial projects that were supposed to act as an engine in a crisis.

The primary idea of ​​the Stabilization Fund

The innovative format of the Stabilization Fund completely contradicted the fundamental idea of ​​the “development budget” project. It was based on the formation of a reserve, which was supposed to compensate, if necessary, due to an unexpected drop in the price of oil, while sterilizing excessive dollar revenues from oil sales. Inflation was to be controlled by investing in foreign assets. In the medium term, the Stabilization Fund was supposed to act as a reserve to eliminate problems associated with financing the structure of state pensions. In fact, the Reserve Fund and the National Welfare Fund act as a specialized monetary fund, which is actively used today to stabilize the state budget as a result of a reduction in income. It can also be used for government needs, but in the long term.

Why does Russia need a fund?

The Russian reserve fund has been formed over many decades due to the fact that the state budget is highly dependent on the situation of external factors. The well-being of states depends on world commodity prices. Today, when the country is subject to strict sanctions from Europe and with the critically low cost of oil, funds from the sale of which dominate the replenishment of the budget, it is the collected reserve that helps the country survive. It allows you to maintain the exchange rate of the national currency and becomes the basis for the state to fulfill its obligations to the population. If Russia did not have reserves, the country would have long ago faced such a phenomenon as default.

Stages of reserve formation

The first stage of formation of the Reserve Fund began in 2003. An account was formed into which funds earned from the export of natural resources were received. Let us clarify here that it was not profits from the sale of oil that were sent to a special account, but excess profits. That is, the remainder of the money from fuel sales that were not provided for by insufficiently optimistic forecasts. The second stage of reserve formation was the creation of the Stabilization Fund in 2004, which was essentially part of the federal budget. Due to the fact that the domestic economy was strongly tied to the commodity market, the formation of a “safety cushion” became a prerequisite for the further prosperity of the nation. The last stage in the formation of the reserve is the Reserve Fund and the National Welfare Fund.

Stabilization of the economy through the fund

The state's export capabilities suffer significantly from its strong dependence on oil and gas exports. The situation leaves a negative imprint on the status of the state and deals a blow to production facilities that are export-oriented. The source of funds entering the economy in a natural format due to the export of goods and services has been blocked. All incoming cash flows are blocked by petrodollars. The Reserve Fund of Russia today is responsible for ensuring balance in the federal budget, since the price of oil today is several orders of magnitude lower than what was included in the budgets for 2014-2017. The fund is responsible for tying up excess liquidity, reducing inflationary impacts, and eliminating the impact of price surges on the world raw materials market on the national economy. We can summarize and highlight three main functions of the fund:

• Covering the Russian budget deficit.
• Preventing development in the economy.
• Financing pension savings and covering the budget deficit of the Pension Fund.

The purpose of the Fund is welfare and movement of funds

Theory is one thing, but practice and history speak of a slightly different purpose of the reserve. The Reserve Fund funds are used to ensure that the state fulfills expenditure-type obligations while revenues from the oil and gas sector of the economy are declining. The volume of reserves is set at 10% of the expected volume of GDP. Initially, cash flows are sent to treasury accounts. The missing amount of funds from the non-oil sector is covered by redirecting money through the oil and gas transfer. Next comes the filling of the Reserve Fund itself. After its volume corresponds to 10% of the funds received, the cash flow is redirected to the National Welfare Fund, which will compensate for the pension budget deficit. The reserve fund remains untouched until revenues from the oil and gas sector of the economy are reduced significantly. Most of the reserve capital savings are converted into financial assets and currency. These are debt obligations of international organizations and securities, deposits in foreign financial institutions.

Where does the flow of funds into the country's reserves come from?

The Reserve Fund and the National Welfare Fund are formed not only from excess profits from oil sales. Capital replenishment occurs thanks to:

• mineral development tax;
• export duties on crude fuel;
• duties levied on the export of goods made from oil.

Another source of replenishment is profit from managing the latter’s funds. The size of the Reserve Fund is controlled by accounting for funds in separate accounts opened by the Treasury with the Central Bank of the Russian Federation. All incoming and outgoing transactions on the account are carried out by the Ministry of Finance of the Russian Federation in accordance with the law.

Special mechanisms for managing the fund's assets

As mentioned above, the National Welfare Fund acts as part of the federal budget. At the same time, reserve funds are managed in a slightly different format than financial assets in the federal budget. The main goals of money management are to preserve them, as well as to stabilize the level of income from their transformation into assets in the long term. All assets into which funds can be transformed are clearly defined by the Budget Code of the Russian Federation. Assistance from the National Welfare Fund is provided instantly when a deficit occurs. Information about the receipt and expenditure of funds from the reserve is published every month in the media.

The amount of savings of the Russian government

The Russian Federation informed the public that over the past two years the National Welfare Fund has increased by about 51.3%, and the Reserve Fund has grown by 72.9%. The reserve fund increased by 2.085 trillion rubles and by January 1, 2015, despite the prevailing crisis, amounted to 4.945 billion. In dollar equivalent, both reserves are estimated by experts at $165 billion. The positive capital gains are overshadowed by a statement from the Accounts Chamber in October 2014. According to representatives of the agency, if the rate of decline in oil prices on the international market and the degradation of the state’s economy continue, the Russian National Welfare Fund will be completely exhausted in the next two years.

Latest data from the Ministry of Finance

As of April 1, 2015, the size of the Reserve Fund was 4.425 trillion rubles or $75.7 billion. The National Welfare Fund is equivalent to 4.436 trillion rubles or 74.35 billion dollars. During the month of March, a reduction in the National Welfare Fund was recorded by 244 billion rubles, and the Reserve Fund - by 295 billion rubles. Let us recall that at the end of March the State Duma adopted a crisis budget, which stipulated the conditions for spending funds from the funds. According to preliminary calculations, the volume of the reserve by the end of 2015 will be only 4.618 trillion rubles. It is planned to spend about 864.4 billion rubles on the development of infrastructure projects to reconstruct the state’s economy.

Subject to separate accounting and management in order to ensure co-financing of voluntary pension savings of citizens of the Russian Federation, as well as ensuring balance (covering the deficit) of the budget of the Pension Fund of the Russian Federation.

Formation of the fund

The National Welfare Fund is formed through:

• oil and gas revenues of the federal budget in an amount exceeding the volume of oil and gas transfers approved for the corresponding financial year, if the accumulated volume of the Reserve Fund reaches (exceeds) its standard value;
• income from managing funds of the National Welfare Fund.

Accommodation

On April 21, 2010, the Chairman of the Government of the Russian Federation V.V. Putin signed a decree of the Russian Government that until February 1, 2012 the Ministry of Finance will not be obliged to publish on the Internet information about the volumes of funds received into the accounts of the Reserve Fund and the National Welfare Fund, that where they are located and how they are used. Some economists believe that the refusal to publish this information is due to the rapid decline in the funds of both funds. Currently, the Ministry of Finance website contains information about the amount of funds in each of the funds.

Dynamics of changes

see also

• Budget Code of the Russian Federation

Notes

Links

• Dynamics of changes in the National Welfare Fund on the website of the Russian Ministry of Finance

Wikimedia Foundation.

• 2010.
• Robertson, David (conductor)

Agdash district

See what the “National Welfare Fund of Russia” is in other dictionaries: Reserve Fund of the Russian Federation

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Russia is a country rich in gas and oil resources, which it successfully exports, and part of the federal budget revenues from the sale of hydrocarbons goes to the Russian National Welfare Fund. How are the funds of a fund with such a beautiful and even patriotic name spent, what do the people of Russia receive as a result, and how objective are the critics who accuse the authorities of careless or even “predatory” management of the funds of the National Welfare Fund?

History of the National Welfare Fund

For the first time, a special federal fund, formed (filled) from oil and gas revenues of the Russian state, was founded on January 1, 2004. It received the full name of the Stabilization Fund of the Russian Federation, abbreviated as the SF of Russia.

In essence, the new fund began to accumulate state financial assets, which are managed not by parliament when approving the federal budget, but by the government represented by the Ministry of Finance.

The procedure for the formation and expenditure of funds from the fund is initially regulated by the Budget Code of the Russian Federation:

• from 2004 to 2008 - Chapter 13.1, which subsequently became invalid;

• since 2008 - Chapter 13.2 on the use of oil and gas revenues in the federation. budget and, in particular, Art. 96.10 “National Welfare Fund”.

It was on February 1, 2008 that the Stabilization Fund of the Russian Federation was reorganized by dividing it into the National Welfare Fund and the Reserve Fund of the Russian Federation.

From 2008 to 2017 inclusive, the formation of the Russian National Welfare Fund was carried out at the expense of excess income from the sale of oil and gas (if, when transferred to the Reserve Fund, its standard value was exceeded), as well as at the expense of income derived from the management of the Reserve Fund. After 2010, the rate of contribution to the funds was set at 3.7% of , although in 2008 it was 6.1%.

At the beginning of 2018, the Reserve Fund was completely spent and merged with the National Welfare Fund - now a single fund receives financing through the sale of hydrocarbons on foreign markets and the management of its own funds. The current schedule of the fund's funds can be found here http://rffx.ru/blog/tags/graphics . The data can also be found in the “Statistics” section on the official National Welfare Fund.

Please note: at the same time, part of the income derived from the management of the money of the former Stabilization Fund is credited to the federal budget.

Objectives of the National Welfare Fund

According to the Budget Code of the Russian Federation, filling and increasing the funds of the National Welfare Fund has a triple goal:

1. co-financing of pension savings of Russians;

2. covering the federal budget deficit;

3. ensuring a balanced budget of the Russian Pension Fund.

The law entrusts the management of the funds of the National Welfare Fund to the Ministry of Finance of the Russian Federation. It also allows for the exercise of separate powers to manage the fund's assets - thereby facilitating the formation of the Banking Sector Consolidation Fund ().

Russian legislation also specifies a list of assets in which the National Welfare Fund can invest funds. Any expenditure of money that is an innovation requires the adoption of amendments to the law to allow such freedom. At the moment, it is planned to replenish the fund with income when the oil price exceeds $40 per barrel.

Volume of funds of the National Welfare Fund

According to official data from the Russian Ministry of Finance, in 2017 the National Welfare Fund shrank to 3.753 trillion rubles, or $65.15 billion, which amounted to 14% in national currency and 9.3% in American currency. In general, the fund respects the currency exchange rate and contains four currencies - approximately a third of the assets are in dollars and euros, a quarter in rubles and the balance (less than 10%) in pounds sterling.

The National Welfare Fund today is poorer not only compared to January 1, 2017, but also since December 1, since in the last month money was transferred from the fund to balance the Pension Fund. In addition, funds from the National Welfare Fund were used to finance a number of foreign projects through Vnesheconombank. More than 1/3 of the fund’s assets are illiquid, allocated in the following areas:

• on separate accounts with the Central Bank of the Russian Federation - $15.65 billion;

• on deposits with Vnesheconombank - 222.47 billion rubles. and $6.25 billion;

• on deposits in two more state banks, VTB and Gazprombank, intended to finance de jure self-sustaining investment projects approved by the Cabinet - 164.43 billion rubles;

• in securities of Russian issuers, again related to the implementation of “self-sustaining infrastructure projects” - 112.63 billion rubles. and $4.11 billion;

• in preferred shares of banking organizations - 278.99 billion Russian rubles.

Criticism

At the end of 2013, economists and some politicians criticized the Russian authorities led by V.V. Putin was harshly criticized for his decision to use part of the National Welfare Fund to purchase Ukraine's sovereign debt. According to the agreement signed by the Russian leader and Ukrainian President Viktor Yanukovych, Russia intended to buy “independent” securities for a total amount of $15 billion, including $3 billion immediately after signing the document. By the way, Ukraine was not on the list of states whose bonds could be purchased with the fund’s money, so the Russian parliament had to quickly adopt amendments.

As is known, Yanukovych subsequently failed to retain his post, and the new Ukrainian authorities made every effort to refuse to service the debt to the Russian Federation. Whether it will be possible to return investments in bonds of a state that recently declared Russia an “aggressor” at the legislative level is currently an open question. But it is no secret that in recent years we have forgiven much larger debts to other countries with “good” mutual relations.

Big questions were also raised by the decision to invest the fund’s money in infrastructure projects, above called “self-sustaining” in quotation marks. Experts argue that investments in the Moscow-Kazan high-speed road, a new ring bypass road in the Moscow Region (TsKAD), as well as the reconstruction of the Trans-Siberian and BAM railways will not pay for themselves. Meanwhile, there was no need to reinvent the wheel. Investments of the fund's funds after the 2008 crisis in both the US market and the Russian market, which stalled in 2010-14, would show excellent returns today. I made a comparison of the National Welfare Fund with a similar Norwegian fund. Highways, out of habit, look more like a means of “using” money, and few people have any doubts that the quality of these roads (if construction is completed) will be greatly affected by corruption.

Also causing concern is the real state of affairs of the Pension Fund, which the NWF money is intended to support. The crisis in the banking sector of recent years may well spread to the area of ​​pensions - there have already been high-profile cases of theft of money from a number of funds. Now, after the liquidation of the Reserve Fund, many forecasts for the future of the National Welfare Fund are pessimistic. From September to December 2017, an amount of 165 billion rubles was poured monthly from the National Welfare Fund into the Pension Fund. This means that if the pace of tranches is maintained and the size of the national welfare fund remains unchanged, the funds will be enough for about two years. The future is unknown, but one thing is clear - a decrease in oil prices will be bad for the sovereign wealth fund, while an increase will be favorable to it. However, the management of the fund definitely needs to be improved, reducing dependence on raw materials and the share of risky projects, while the liquid part of deposits only restrains, but does not overtake inflation.