Putin seeks to rein in ‘rainy-day fund’ spending as energy transition looms By Reuters

Putin seeks to rein in 'rainy-day fund' spending as energy transition looms
© Reuters. FILE PHOTO: Russian President Vladimir Putin is seen at the Bocharov Ruchei state residence after a meeting with Turkish President Tayyip Erdogan in Sochi, Russia September 29, 2021. Sputnik/Vladimir Smirnov/Pool via REUTERS

By Darya Korsunskaya

MOSCOW (Reuters) – President Vladimir Putin ordered the Russian government to look at curtailing spending from the state rainy-day fund on Friday, after the finance ministry said the global shift away from oil and gas could jeopardise Russian state finances within a decade.

Russia now has around $190 billion in its National Wealth Fund, around $115 billion of which, or 7.3% of GDP, is liquid assets raised mainly from selling oil and gas.

The government is now permitted to spend liquid assets that accumulate above 7% of GDP. But Putin ordered the cabinet to look into raising that threshold to 10%, potentially reducing future spending by tens of billions of dollars.

The government announced plans last week to invest $34 billion from the fund over the next three years.

“Without doubt, the NWF needs to be preserved,” Kremlin spokesman Dmitry Peskov told reporters on Friday. “And as the global financial and economic situation surrounding Russia is quite unpredictable and contains crisis risks, the role of the NWF is increasing.”

The Kremlin’s document was released a day after draft budget amendments from the finance ministry described risks to state finances from the global transition away from fossil fuels, and recommended “an especially cautious approach” to investing surpluses in the wealth fund while energy prices remain high.

The EU, Russia’s main energy customer, aims to reach “net zero” emissions by 2050.

The Russian finance ministry sees the average price of Russia’s flagship Urals oil falling to $55.7 per barrel in 2024 from $66 per barrel this year on projected weaker demand from the global push to cut carbon emissions.

Global oil prices may fall to as low as $35 per barrel in 2030 and further to $25 per barrel by 2050 as “demand for oil would fall drastically should zero-neutrality goals announced by a number of countries become a law”, it said.

Emissions cuts could put pressure on Russia’s state budgets as soon as the early 2030s. In the most severe scenario, the wealth fund could shrink to as little as 3% of GDP in 2030-31, the ministry said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Leave a Reply

Your email address will not be published.