Russia does not know what to do with their oil billions

“Russia can be criticized in many ways. However, one today no doubt, namely, that the country has learned from its negative experience, – the journalist writes the German newspaper Die Welt Eduard Steiner. – With iron financial discipline second country in the world in oil production prepares its state budget to confront the recession due to falling oil prices and Western sanctions. The course is aimed at saving also designed to protect against potential problems in the future (…)”.

“For this, in 2017 the government in Moscow imposed a fiscal rule, according to which the revenues derived from the sale of oil at a price of over 40 dollars per barrel (159 liters) should not be used on public spending, and be sent in the form of a stable currency in the state Fund, also called Fund of national well-being”, – explains the author.

“However, it filled much faster than expected – not least due to the relatively high price of oil, which now stands at around $ 65 per barrel. An increase to 124 billion, corresponding to 7.3% of GDP, the Fund passed the critical level of 7%, from which the excess can then spend”.

So for several months the responsible person scratching their heads over what to do with the money. “To throw money at the problem will not” – clearly stated by President Vladimir Putin to put in place those who reached out for a piece of the pie”.

“In many ways was a proposal to follow the example of the state Fund of Norway. The world’s largest state Fund, invests his money exclusively abroad, mainly in equities, in order to prevent inflation in the country and the adverse revaluation of its currency”.

“On the other hand, Russian entrepreneurs have begun to advocate that investing some billions into their company is among the state corporations like Russian Railways, Russian Post, the gas concern “Gazprom”, as well as private gas company NOVATEK.

However, the government managed to come to a decision. As reported by the newspaper “Vedomosti”, at least some of the money to be invested inside the country, sanctions has led to significant investment stagnation.

However, investments will be limited to some large projects and strict regulations. Thus, the investment projects should be financed by the state Fund not more than 20%, and their yield should at least equal the yield of Russian government bonds (currently between 6.5-8%). Also on domestic spending for the next three years will only receive one trillion rubles, according to the article.

“The last word in this matter is not mentioned, so as the Parliament may amend, – noted in a conversation with Die Welt Vladimir Tikhomirov, chief economist at financial group BCS Global Markets. – Although amendments to be minor, some will probably hope for more access to money”.

“The Russian government had previously set aside money for hard times and therefore was able to mitigate global financial crisis that began in 2008 and the economic crisis that began in 2014”, – the newspaper notes.

“At the moment, Russia’s international reserves amount to 540 billion dollars, the highest level in more than eight years,” says Steiner. The historical maximum of gold reserves is in August 2008 – when they amounted to 598 billion dollars.

“It is highly likely that in the future foreign exchange reserves will continue to grow due to national welfare Fund (…). If only Moscow sooner or later will not solve the example of the Norwegians to invest their excess revenue in global stocks,” writes Die Welt.

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