Vladimir Putin instructed the government to consider the possibility of raising the threshold for the liquid part of the National Welfare Fund (NWF), above which savings can already be spent on investments, from the current 7% to 10% of GDP. The close deadline for the execution of the order – October 15 – means that there will be no protracted discussions, usually accompanying the topic of using the NWF, this time. The Ministry of Finance explains the need for a new threshold, postponing new investments from the NWF until 2024, by the fact that the energy transition of developed countries to a low-carbon economy carries risks of falling commodity prices by 2030 – and now both the Ministry of Economy and the Central Bank agree with it.
Vladimir Putin’s instructions appeared following a meeting with the government on economic issues held on September 28, after which a three-year budget package was submitted to the State Duma ( see Kommersant dated October 1 ). Most of these instructions look like a continuation of the authorities’ work on the budget, but one of them was somewhat unexpected: the government should “consider the feasibility” of amending the legislation before October 15 to gradually increase the threshold of the NWF funds from 7% to 10% of GDP placed on deposits and bank accounts with the Central Bank, in excess of which they can be directed to investments. Upon reaching this level, it is planned to prevent the placement of the fund’s funds “in other financial assets, with the exception of the list of infrastructure projects approved after October 1, 2021 in an amount not exceeding 2.5 trillion rubles.” Thus, we are talking about raising the already actually achieved volume of the liquid part of the NWF (according to the Ministry of Finance, as of September 1, it was equal to 8.48 trillion rubles, or 7.3% of GDP) from 7% to 10%.
As indicated in the instruction, the change in the threshold will not affect the infrastructure projects already selected now – they will receive money from the NWF.
Note that although there is no list of projects, work is underway … Yesterday, the Ministry of Construction posted for discussion the draft rules for financing the construction and reconstruction of infrastructure facilities through the Fund for Assistance to the Development of Housing and Communal Services using funds from the NWF. And yesterday, Vladimir Putin instructed until October 20 to resolve the issue of allocating up to 97 billion rubles from the NWF in 2022–2031. for the purchase of 950 metro cars for St. Petersburg. Finance Minister Anton Siluanov said in September that the limit for funding projects from the NWF for 2021-2024 is 1.6 trillion rubles, while 900 billion rubles are planned to be allocated in addition to it. for a gas chemical project in Ust-Luga. The Ministry of Finance predicts that the reserve part of the NWF at the end of 2022 will amount to 8.2% of GDP (10.96 trillion rubles), in 2023 – 10.3%, in 2024 – 11.7% (all this taking into account the reserve for project financing in the amount of up to RUB 2.5 trillion). This forecast means that raising the threshold will postpone new spending by the NWF on investments until at least 2024. It should be noted that the total size of the fund (the liquid and the “scheduled” part as a whole) by the end of 2024 will reach 23.3 trillion rubles, which is approximately equal to the annual revenue part of the budget. It is expected that this year it will receive 23.8 trillion rubles.
Recall that the budget forecast of the Ministry of Economy for 2022–2024 in its base case assumes that oil prices pass their peak values in 2021, then there is now. At the same time, both the Ministry of Finance and the Central Bank agree that decarbonization and a possible carbon tax in the EU will significantly affect the export revenues of the Russian economy only after 2024, but this risk will be realized in the form of a decrease in demand for Russian hydrocarbons, and not a fall in prices for oil. Meanwhile, in the next three years, especially taking into account the pro-inflationary trends in the global economy, a scenario in which the NWF, due to significantly higher-than-forecast oil prices, will reach the threshold of 10% of GDP by 2023 does not seem unrealistic. However, the methods of forming the NWF – transfers only at the end of the past year – and in this structure, in reality, until 2024, they quite reliably close the way for the fund’s money to the domestic economy.
Raising the threshold, of course, corresponds to the traditional conservative policy The Ministry of Finance for the accumulation of reserves in case of crises (which has already proved its effectiveness several times), but the Ministry of Economics is unlikely to like it, which considered the “money box” as a source of investment for the acceleration of economic growth required from the department. More recently, speaking at the Moscow Financial Forum, the head of the Ministry of Economy, Maxim Reshetnikov, named among the sources of economic growth in 2023 and 2024 at 3% “and the funds of the NWF in excess of the very safe seven percent level, some of which should be directed to support projects.” Yesterday, the Ministry of Economy did not comment on raising the threshold, but the ministry’s revised macro-forecast, submitted on Thursday as part of the budget package, said that with regard to internal conditions, the premise has already been laid “to postpone the investment of NWF funds at a later date.” Although, according to Kommersant’s information, there are supporters of less rigidity in spending the NWF in the ministry, in its official position, the Ministry of Economy is in solidarity with the Ministry of Finance. discussed and the decision at this level to shift the threshold from 7% to 10% approved. there are also potential beneficiaries of large over-planned expenditures of the NWF on additional infrastructure.
Meanwhile, the Ministry of Finance, in the program document – in the “Main Directions”. The agency believes that the trends in the energy transition and the associated risks of falling oil demand may threaten Russia’s fiscal stability. It is reported that stress testing of budget parameters has been carried out in connection with this threat, and it is noted that even the inertial scenario presupposes reaching a peak in global oil demand by 2025. And according to the “Carbon neutral” (zero emissions) scenario, the demand for oil in 30 years will fall by almost five times. The price level in such conditions will be determined by the cost of producing a specific barrel of oil – from $ 30 to $ 50 per barrel in 2020 prices. “If the most ambitious scenarios for reducing emissions are implemented, the issue of sustainability of the federal budget may arise already in the early 30s. In this light, it is necessary to be especially careful when investing additional market income accumulated during a period of relatively high prices, ”the Ministry of Finance notes. According to his calculations, the volume of investments, which will not have a significant impact on the parameters of monetary policy and on the effectiveness of the “budget rules”, is about 400 billion rubles. per year.
Note, however, that the appeal of the Ministry of Finance to “coal native “rhetoric justifying the rigidity of the application of” budget rules “is as clear as it is risky. can also be imagined as a means of confronting the future “carbon crisis” in the Russian Federation, since such investments, in theory, can reduce the dependence of the country’s economy on hydrocarbon exports at a faster pace than is currently provided by “budget rules”. But at least now the positions of the Ministry of Finance look more reliable: accelerated diversification as a response to the EU’s actions is an illusory idea, while financial stability achieved in 2014-2019 by the efforts of the government and the Central Bank, including through “budget rules”, is the current reality. the benefits of which (first of all, the active restart of collective investment mechanisms from 2018) are obvious to more or less everyone. And, finally, for the Central Bank, maintaining the 7% threshold in the implementation of pro-inflationary scenarios in the global economy will almost inevitably mean longer periods of high key rates, and this is unlikely to please the industry.
Vadim Visloguzov, Dmitry Butrin
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