MOSCOW: On paper, Russia’s Reserve Fund has more than halved over the last 12 months, down from $71 billion to $32 billion as of September 1, 2016. Normally, it would imply that the Russian government has been spending FX reserves to cover the budget deficit and the Russian reserves should have declined accordingly.
The government has spent some RUB 1.17 trillion ($18 billion) from the fund since the start of the year to cover budget deficit. The bulk of the spending, however, is likely to happen in the coming months as it did last year. It would more or less deplete the Reserve Fund by early-mid next year (depending on the oil price and privatisation deals).
The government would then have to move on to spend the National Wealth Fund, which stood at $72.7 billion as of September 1, 2016. Excluding money already invested, liquid FX assets amounted to around $48 billion. There was media speculation that funding of various infrastructure projects from the National Wealth Fund might be subject to revision.
Presumably, to save fund’s money. Most of it, however, is happening notionally. In reality, Russia’s total FX reserves are on the rise, which indicates that the central bank holds on to FX and prints money to cover budget deficit. It has been happening throughout this year and is unlikely to change in 2017.
While most of the $26.7 billion increase in FX reserves this year is down to repayment of REPO loans ($11bn) and gold ($4bn in purchases and $11bn in revaluation), there is not a sign of spending of the Reserve Fund. Its decline seems to be a simple reclassification into Other FX reserves. The last time the central bank sold FX was in early February 2015.
