National Welfare Fund Budget. National Welfare Fund

In fact, the National Welfare Fund is replenished from federal budget funds, which are subject to separate accounting and management in order to ensure co-financing of voluntary pension savings of Russian citizens, as well as ensuring a balance between the federal budget and the budget of the Russian Pension Fund.

The part of the National Welfare Fund denominated in foreign currency and placed by the Russian government in accounts with the Bank of Russia, which is invested by it in foreign financial assets, is accounted for as part of the International reserves of the Russian Federation. Part of the funds of the National Welfare Fund was used in projects that are unacceptable in terms of risk and liquidity for the placement of international reserves. Thus, the National Welfare Fund performs the functions of a riskier, but potentially more profitable instrument for the Government of the Russian Federation.

Description

The National Welfare Fund of Russia was formed on February 1, 2008 as a result of the division of the Stabilization Fund in force at that time into the Reserve Fund (created to provide financial support for oil and gas transfers) and the National Welfare Fund (created to ensure co-financing of voluntary pension savings of citizens of the Russian Federation and balance (covering the deficit ) budget of the Pension Fund of the Russian Federation). The National Welfare Fund was replenished from oil and gas revenues of the federal budget in a volume exceeding the volume of oil and gas transfers approved for the corresponding financial year, from the moment when the accumulated volume of the Reserve Fund reached (exceeded) its standard value.

The National Welfare Fund is a “safety cushion” that allows the state to compensate for the loss of oil and gas revenues in the event of a sharp drop in oil prices and to fulfill all social obligations assumed.

On January 1, 2018, the National Welfare Fund was merged with the Reserve Fund into a single fund based on the National Welfare Fund. On February 1, 2018, the Reserve Fund ceased to exist, and the funds in it were previously used to ensure that the state fulfills its spending obligations.

As a result of the merger of the funds, the intended purpose of the NWF funds remained the same: co-financing voluntary pension savings of Russian citizens, ensuring the balance of the Pension Fund budget, but the goal of ensuring balance (covering the deficit) of the federal budget was also added.

Formation of the National Welfare Fund

The National Welfare Fund is formed through:

Additional oil and gas revenues from the federal budget above the cut-off price are used to replenish the National Welfare Fund. In turn, the cut-off price is the base price of 40 US dollars per barrel of Urals oil in 2017 prices, subject to annual indexation from 2018 by 2 percent. The determination of the base oil price at this level is determined by the assessment of the long-term equilibrium level of oil prices.

Management of funds of the National Welfare Fund

The funds of the National Welfare Fund are managed by the Ministry of Finance of Russia 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 Russia.

Managing the funds of the National Welfare Fund in order to ensure a stable level of income from their placement in the long term allows for the possibility of obtaining negative financial results in the short term.

Accommodation

The funds of the National Welfare Fund, both individually and simultaneously, can be placed in foreign currency and financial assets of the following types:

• debt obligations of foreign governments, foreign government agencies and central banks;
• debt obligations of international financial organizations, including in the form of securities;
• deposits and balances in bank accounts with banks and credit institutions, including for the purpose of financing self-sustaining infrastructure projects;
• deposits and balances in bank accounts in the state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)", including for the purpose of financing projects of the state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)" in the real sector of the economy, implemented by Russian organizations;
• deposits and balances in bank accounts with the Central Bank of the Russian Federation;
• debt obligations and shares of legal entities, including Russian securities related to the implementation of self-sustaining infrastructure projects (the list of such projects is approved by the Government of the Russian Federation);
• units of investment funds, the trust management of which is carried out by the Management Company of the Russian Direct Investment Fund.

The Government of the Russian Federation, as part of reporting on the execution of the federal budget, submits to the State Duma of the Federal Assembly of the Russian Federation and the Federation Council of the Federal Assembly of the Russian Federation an annual report on the formation and use of additional oil and gas revenues of the federal budget, quarterly and annual reports on the formation and use of funds from the National Welfare Fund and about the management of its funds.

Structure of asset allocation and profitability

The Government of the Russian Federation establishes the maximum norms of permitted financial assets in the total volume of allocated funds of the National Welfare Fund. In order to increase the efficiency of managing the funds of the National Welfare Fund, the Ministry of Finance of Russia is authorized to approve the regulatory shares of permitted financial assets in the total volume of allocated funds of the National Welfare Fund within the limits of the corresponding shares established by the Government of the Russian Federation.

As of January 1, 2018, the volume of the National Welfare Fund amounted to 3,753 billion rubles, which is equivalent to $65 billion, including:

1. About US$15 billion, EUR 15 billion, and GBP 3 billion are placed in separate accounts for the accounting of funds of the National Welfare Fund with the Bank of Russia;
2. on deposits with Vnesheconombank - more than 222 billion rubles and 6 billion US dollars;
3. in debt obligations of foreign states on the basis of a separate decision of the Government of the Russian Federation, without presenting a requirement for a long-term creditworthiness rating - USD 3.00 billion;
4. in securities of Russian issuers related to the implementation of self-sustaining infrastructure projects, the list of which is approved by the Government of the Russian Federation - 113 billion rubles and 4 billion US dollars;
5. in preferred shares of credit institutions - about 279 billion rubles;
6. on deposits with VTB Bank (PJSC) and GPB Bank (JSC) in order to finance self-sustaining infrastructure projects, the list of which is approved by the Government of the Russian Federation - about 164 billion rubles.

The total income from placing the Fund's funds in permitted financial assets, excluding funds in accounts with the Bank of Russia, in 2017 amounted to 50.84 billion rubles, which is equivalent to $0.87 billion.

In 2018, the revenues of the federal budget of the Russian Federation from the placement of funds from the National Welfare Fund amounted to 70.52 billion rubles.

All data on the structure of the National Welfare Fund's investments in financial assets and the return on investment are updated on an annual basis on the official website of the Russian Ministry of Finance.

It is allowed to obtain a negative financial result from the placement of funds from the National Welfare Fund.

Dynamics of changes

Information on changes in the volume of the National Welfare Fund in US dollars and in ruble equivalent, as well as data on the movement of funds and the results of managing the funds of the National Welfare Fund are published monthly on the website of the Ministry of Finance of Russia.

Now many people talk and write about how the reserve fund and the National Welfare Fund of Russia when the funds of the National Welfare Fund and the reserve fund run out, etc. So I also decided not to stand aside, and I will write a little of my opinion on these issues - on the use of the reserve funds of the Russian Federation. But first, a little theory and analytics to get a good idea of ​​what we’re talking about.

So, in general, having a reserve fund is a normal and necessary practice for any business entity: from the state to an individual. The funds from the reserve funds serve as the so-called a financial “safety cushion” that can always be used in the event of certain force majeure situations that require financing.

Russia began to think about the need to create state reserves in the early 2000s, and on January 1, 2004, the Stabilization Fund was created (the idea of ​​its creation belonged to the then Minister of Finance Alexei Kudrin). The stabilization fund was formed from the world's leading currencies (primarily dollars and euros), as well as highly reliable bonds of developed countries. The initial volume of the stabilization fund was only 5.9 billion dollars or 171.3 billion rubles.

Over the following years, Russia's stabilization fund was gradually replenished, and on the eve of the financial crisis of 2008, or rather on February 1, 2008, the stabilization fund, the volume of which at that time was already 156.81 billion dollars or 3.849 trillion. rubles, was divided into two different funds:

1. Reserve Fund (at that time - 125.19 billion dollars or 3.058 trillion rubles);
2. National Welfare Fund of the National Welfare Fund (at that time - 32 billion dollars or 783 billion rubles).

Let us briefly consider the main characteristics of these funds.

Reserve Fund of the Russian Federation.

Russia's reserve fund is formed from income from the sale of oil and gas, which exceeds planned revenues for these budget items, as well as from income from managing the assets of the fund itself. At the same time, oil and gas revenues not exceeding 7% of the state’s GDP were sent to the reserve fund, and the rest of such revenues were sent to the National Welfare Fund.

The size of the Reserve Fund initially grew slightly in the first months of its foundation, but since September 2008 it began to systematically decline. Currently, out of the original 125 billion dollars, only 16 billion dollars remain in it, and this already amounts to just over 2% of GDP (instead of the planned 7%).

National Welfare Fund (NWF) of the Russian Federation.

The Russian National Welfare Fund is formed from income from the sale of oil and gas, which exceeds planned revenues for these budget items and exceeds regulatory contributions to the reserve fund of the Russian Federation, as well as from income from the management of the fund’s assets.

The National Welfare Fund has a clearly defined purpose - co-financing the voluntary pension savings of citizens of the Russian Federation and covering the budget deficit of the Pension Fund of the Russian Federation. That is, the National Welfare Fund was created as part of the mechanism of the pension system, designed to ensure its stability.

The National Welfare Fund of the Russian Federation is partly part of Russia, and partly it is not. This is explained by the fact that the assets of the National Welfare Fund contain both acceptable risk-based assets for gold and foreign exchange reserves, as well as unacceptable, riskier, but also more profitable assets.

Since its creation, the Russian National Welfare Fund, unlike the reserve fund, at first, on the contrary, predominantly grew. By 2009, it reached a volume of $90 billion and fluctuated around this level until 2012, after which it began a gradual decline. Since December 2014, the volume of the National Welfare Fund has decreased below $80 billion, and as of January 1, 2017. amounted to 71.87 billion dollars.

Interestingly, the National Welfare Fund does not just hold funds in highly reliable assets, but also engages in riskier activities, for example, lending. Large loan tranches from the National Welfare Fund were received by VTB Bank, Rosneft, Rosatom and other companies. It should be understood that the liquidity of such assets is significantly lower, that is, borrowers will not be able to instantly repay their loans. This means that not all funds of the National Welfare Fund of the Russian Federation can be used immediately if necessary.

Spending of the reserve fund and the National Welfare Fund of Russia.

Well, now let’s move on to the most interesting thing - the fact that the volumes of these funds have seriously decreased in recent years, and many economists have already predicted and are predicting their complete depletion in the near future, in particular they call 2017-2018.

What do we actually have? The volume of the reserve fund of the Russian Federation in December 2016 alone in dollar terms decreased by almost 2 times (from 31.30 to 16.03 billion dollars), and for the entire 2016 - by 3.12 times (from 49.95 billion dollars ). Over the past 3 years since the beginning of 2014, the volume of the reserve fund has decreased by 5.45 times (from $87.38 billion). It is logical to assume that in 2017, with continued use, it will indeed completely dry up (or some symbolic amount will remain there).

The picture with the National Welfare Fund is not so terrible yet: in dollar terms for 2016 it remained virtually unchanged, in ruble terms it decreased by 17% (due to the strengthening of the ruble against the dollar). However, this is due to the fact that all this time the reserve fund was mainly used to cover the budget deficit and other missing expenses. Now it’s practically gone, and it’s likely that we’ll have to “get into” the National Welfare Fund.

If we consider only covering the budget deficit, then according to the officially adopted budget, it is planned at 2.75 trillion in 2017. rubles If we cover only this official figure with funds from the National Welfare Fund, its size will decrease from the current 4.36 trillion. rubles by 2.7 times, and at the end of the year only 1.71 trillion will remain in the fund. rubles And if the trend continues, this amount may no longer be enough next year, 2018.

This is actually what many economists are worried about; as you can see, the calculation here is very simple and logical. And taking into account the fact that not all the funds of the National Wealth Fund can be taken and used so easily (after all, they are partially invested in loans, that is, they are not available at a particular moment), then the National Welfare Fund has even fewer real opportunities.

Of course, it is impossible to say 100% that the reserve fund and the National Welfare Fund of the Russian Federation will be spent. Because other instruments can be used to finance missing expenses, for example, external and internal loans. For Russia, the road to external loans in the most profitable financial structures of Western countries is now closed due to sanctions, but if you wish, you can find more expensive loans, for example, in Asian countries.

You can also follow the path of internal borrowing by issuing debt obligations. And this mechanism has already been launched: the Ministry of Finance has begun issuing and placing OFZs, although not for such significant amounts.

Here we need to remember that in 2008, the active attraction of domestic loans through GKOs led to the country (Russia refused to pay on GKOs), so both the issuer and those wishing to borrow their money to the state should be careful with this instrument.

What else can you resort to? To eliminate or reduce the budget deficit by increasing some revenue items and reducing expenditure items. Judging by experience, this may involve raising taxes and reducing social spending. Separate steps in this direction are also already underway, for example, medical costs were reduced by a third in 2017.

In general, there are options, but they all carry their own difficulties, and so far they have not really solved the problem of the budget deficit - it exists and is quite large.

Is it worth spending funds from the National Welfare Fund and the Reserve Fund of the Russian Federation?

Well, in conclusion, I will write what I think on this issue. The use of reserve funds in itself is a completely normal practice, because that is why they are created. Another issue is that reserve funds are intended to be used in force majeure situations, after which they must be restored to ensure the same possibility in the future. And when recovery does not occur, this is already a problem.

My regular readers know that I like to compare the state/enterprise with a person or family in terms of the need to maintain a budget, record income and expenses, form funds, etc. Today, to make it easier to understand, I will make a reverse comparison.

Just imagine: there is a person who has 6 monthly income. And at some point this person loses his job, loses his income - he faces a force majeure situation. A person begins to use his reserve fund, which is enough for him to live comfortably for 6 months. But what should he do at the same time? That's right: look for a new job, new sources of income! And if during this period he does not find such sources, his reserve fund will be depleted, and this is where a real financial disaster will occur.

What is Russia doing now by analogy with this man? She has lost her “job” - income from the sale of oil, the price of which has fallen significantly, and at the same time is not looking for a new “job”, but is simply slowly “eating away” from the accumulated reserves. The situation is further aggravated by sanctions and anti-sanctions - this, by analogy, means that now a person will not be hired everywhere, the most interesting and promising job is closed to him.

In this situation, a person should strive to improve as much as possible, improve his reputation in order to find new sources of income, because there is not much time left. Russia is not doing any of this, but is simply proudly waiting for oil prices to rise again so that it can live and earn “as before.” But whether they will rise, and even in such a short time remaining, is a big question. It’s the same as if a person sat and waited to be called back to the job from which he was fired, because he considers himself a very valuable and irreplaceable employee.

In general, as for me, this is a completely dead-end position, but we will see what it leads to as a result. So far the situation is bleak.

Now you have an idea of ​​what the reserve fund and the National Welfare Fund of Russia are, how they change, when the funds’ funds may run out and why. Draw your own conclusions.

See you again at ! Improve your financial literacy and learn to independently analyze the financial and economic situation.

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 budget replenishment, 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 Russian Reserve Fund is today responsible for ensuring balance in the federal budget, since the price of oil today is several orders of magnitude lower than what was budgeted for 2014-2017. The Fund is responsible for tying up excess liquidity, reducing inflationary impacts, and eliminating the impact of price shocks on the global 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 immediately 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.

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 countries. 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 the amount 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 (undefined) . www.cbr.ru. Retrieved July 30, 2016.
3. Vadim Visloguzov. The State Duma has pooled its nest eggs. Newspaper “Kommersant” No. 127 of July 15, 2017, p. 2
4. Beginning of a working meeting with Assistant to the President Arkady Dvorkovich On the official website of the President of Russia October 13, 2008

When will the National Welfare Fund end?

What is the National Welfare Fund and what are its prospects?

In recent years, many economists have predicted the complete depletion of Russian reserves. Readers probably remember reports that the Russian Reserve Fund has ceased to exist. Foreign and domestic investors reacted differently to this news background. In this review we will look in detail at:

• what is the National Welfare Fund and how does it affect the investment climate;
• what happened to the Russian Reserve Fund;
• what is the safety margin of the National Welfare Fund and what to expect from it in the future.

What is the National Welfare Fund

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The National Welfare Fund (NWF) is the financial reserve of the Government and a kind of “box” for a rainy day. It consists of investment assets that can be urgently sold in order to fulfill the social obligations of the state in the event of a sharp drop in oil and gas revenues.

Data on the National Welfare Fund is open and updated monthly on.

The fund is formed from two main sources:

• Additional income from the sale of hydrocarbons, above the price prescribed in the budget;
• Income from fund investment management.

In the short term, the law allows negative financial results from management. Funds from the National Wealth Fund are spent in three areas:

• Financing of the Russian Federation, which allows it to be balanced in conditions of negative demographic dynamics;
• Covering the budget deficit;
• Infrastructure projects financed through VEB.

The composition of the assets of the National Welfare Fund is determined and controlled by the Central Bank. The basis of the portfolio is foreign currency and securities of countries with a high credit rating.

What is affected by the presence and condition of government reserves, why should this be of interest to a private investor?

1. Investment climate, attractiveness of the market for non-residents. Investment funds take into account in their models the presence and size of the country's external debt and financial reserves. The influx or outflow of foreign investment, which now accounts for about 35% of all investments, significantly affects the value of Russian assets.
2. Reserves affect the exchange rate of the ruble against major currencies. For example, they enable the Central Bank, if necessary, to support the ruble with foreign exchange interventions.
3. The viability of the current government, its ability to maintain social stability. This directly affects the dynamics of stock assets, because the Russian economy consists of at least 70% of the public sector. The private sector, in turn, is also dependent on government policy. When investing in Russian assets, an investor must take into account political risks.

Thus, financial reserves are important not only as a source of public sector salaries and pensions. The health of a fund influences how foreign and domestic investors assess market prospects and risks.

Reserve funds for future generations are often created by governments, which have the following characteristics:

1. The country has large hydrocarbon reserves, the prices of which are subject to fluctuations. This means that tomorrow the price could fall by half, which would put budget execution in jeopardy.
2. The state has a positive trade account balance due to its export-oriented economy. Examples - China, Japan, South Korea, Taiwan.
3. The country has a relatively low... Because of this, it does not have the ability to massively attract cheap borrowing from other countries. For example, the United States, which has the highest rating, can borrow almost unlimitedly without worrying about reserves.

The world's largest sovereign wealth fund is Norway's government reserve fund, worth more than a trillion dollars. It receives revenue from the sale of oil and gas. In 2017 alone, he earned St. $130 billion, or 13.7% per annum. Norwegians are not afraid to invest a significant portion of their savings in risky assets - shares of the largest global companies. The fund allows for pensions of $1,745 per month and an average salary in the country of about $5,500. For each of the 5 million citizens there are $208 thousand in reserves.

Why was the Russian Reserve Fund liquidated?

The Fund for Future Generations that exists today appeared in Russia in 2004. Then it was called the “Stabilization Fund”. Since 2008 it has been divided into two parts:

• The Reserve Fund, which initially received more than 3 trillion rubles;
• National Welfare Fund of 782.8 billion rubles.

In recent years, the Russian budget has been in deficit. It reached its highest values ​​in 2016 – 3.5%. The budget deficit in 2017 was 1.6% of GDP or 1.5 trillion in rubles. In January 2018, reports appeared in the media about the depletion of the Reserve Fund (which 10 years ago amounted to more than three trillion rubles). The news was accompanied by scary comments like: “The government has spent all its reserves.” On February 1, the remainder of the Reserve Fund was poured into the National Welfare Fund.

What was the money spent on:

• Mega-constructions, including the Olympics in Sochi;
• Otkritie, B&N Bank, Promsvyazbank, etc.
• Covering VEB's losses;
• Payment of current pensions and stabilization of the Pension Fund;
• Covering the state budget deficit.

The capitalization of the Reserve Fund was dealt a severe blow by the currency crisis of late 2014 – early 2015. Then the national currency exchange rate fell by half. The Central Bank carried out large-scale foreign exchange interventions to support the ruble, which at that time had not yet been allowed to float freely.

Financial indicators of the National Welfare Fund

Reserves are formed at the expense of excess profits from the oil and gas sector, if gas exceeds the amount established by a separate law. According to the budget rule, in different years contributions ranged from 1.9 to 7.7% of the country. First, all income received from the sale of oil above $20 per barrel was transferred to reserves, then $27. The 2018 budget includes a conservative forecast for oil prices – $40 per barrel. For comparison, at the time of writing, Brent oil costs about $78, for the first time since 2014.

The National Welfare Fund has two large segments:

• Liquid part (money in accounts, foreign currency, bonds, gold);
• Illiquid part (investments in long-term projects).

The list of assets in which the National Welfare Fund can invest is determined by a separate law 262-FZ:

• Debt securities of foreign countries (USA, Germany, France);
• Bonds and shares of Russian companies implementing infrastructure projects;
• Funds in the accounts of VEB, VTB, Gazprombank;
• Ruble deposits with the Central Bank;
• Units of investment funds (RDIF, Russian Direct Investment Fund);
• Foreign currency– dollar 45%, euro 45%, British pound 10% as of 01/01/18.

At the same time, according to the law, only two types of assets can have a maximum share of 100% - debt obligations of foreign states and deposits with the Central Bank. In other words, if we assume that American Treasuries are recognized as the only reliable instrument, the National Welfare Fund will consist exclusively of them. Or, conversely, the Central Bank will convert everything into rubles. Both are unlikely.

What are the prospects for the National Welfare Fund in Russia?

The volume of the National Welfare Fund as of May 1, 2018 is 3,962 trillion rubles ($64 billion). The target level of the size of the liquid part of the fund in relation to GDP is 7% (currently less than 4%). Until this value is reached, the funds of the National Welfare Fund will continue to be directed primarily to accumulation, and not to solving socio-economic and budgetary problems. According to the adopted rules, 96.5% of additional income from the sale of increasingly expensive hydrocarbons will be used for savings purposes. Considering the set of investment instruments that the Ministry of Finance and the Central Bank have the right to operate, these will mainly be US government debt bonds, foreign currency, . Therefore, the most likely solution for the government in the near future will not be to unseal the money, but to raise taxes. In 2018, the authorities promise to completely stop financing the budget deficit from the National Welfare Fund and direct reserves exclusively to the pensions of future generations. However, these promises are made at high oil prices. It is unknown how they will be implemented when prices drop.

It is obvious that the rate of spending of the National Wealth Fund in 2018 will not be as high as in 2015 and 2016, when the budget was put under pressure by low oil prices and sanctions. During 2018, with oil prices above $60, the National Welfare Fund will be rapidly replenished. The Central Bank is systematically increasing the purchase of foreign currency for the Ministry of Finance. Currently, about 350 billion rubles are spent monthly for these purposes. In 2018, it is planned to buy at least $46 billion. By the way, this will not allow the ruble to strengthen much, even with expensive oil.

The share of gold is increasing - 18% of all gold and foreign exchange reserves in Russia. The Central Bank has gold reserves of $80.4 billion (more than China and fifth in the world). At the same time, the share of securities denominated in foreign currency is decreasing. Plans have already been announced to gradually phase out purchases of American securities (22% or $96 billion). This is due to geopolitical reasons and does not indicate a review of the reliability of the public debt of developed countries.

The question of the advisability of investing in foreign assets remains controversial. In the first quarter of 2018, the placement of NWF funds in foreign exchange instruments turned out to be unprofitable (minus 0.1% or 3.5 billion rubles). Including because of speculative currency transactions, which turned out to be extremely unsuccessful. For example, the dollar was bought at highs in pairs with the euro, and sold after its decline. The second reason for the loss was the temporary effect of the growth of the ruble exchange rate. However, over a longer horizon, investments in the same American government debt more than paid off against the backdrop of a twofold fall in the Russian currency in 2014–2015.

The general conclusion is this. Despite the sanctions, weak economic growth and low efficiency of the public sector, nothing threatens the Russian financial system in the near future. Stability is ensured by the low level of public debt and the constant replenishment of reserves in the form of the National Welfare Fund.

I invite you to speak out in the comments: how do you imagine the future of the fund, what do you think is right or wrong in government policy regarding reserves. For example, should they be spent on investing in the domestic economy or saved to cover future risks?

Profit to everyone!