Neglecting Russian infrastructure investment will nip the country’s economic growth at 3 percent, Economy Minister Andrei Belousov said, urging the government to loosen the fiscal purse strings and unseal its wealth fund.
“Without eliminating bottlenecks in transport infrastructure, we can’t ensure growth above 3 percent,” Belousov told reporters today in Moscow. Insufficient highway capacity will undercut efforts to improve the investment climate unless the annual volume of road building is doubled to 4,000 kilometers over the next two to three years, he said.
Russia, struggling to reverse net capital outflow that reached $56.8 billion last year, faces a shortage of financing to rebuild Soviet-era roads, ports and energy assets that are shackling development in the world’s biggest country by area. The government targets stable 5 percent growth for the economy, according to Prime Minister Dmitry Medvedev.
Starting this year, Russia introduced the so-called budget rule, under which spending will be capped based on long-term oil prices. All extra revenue from oil and gas sales are funneled into the Reserve Fund, one of the country’s two sovereign wealth funds, until it reaches 7 percent of gross domestic product.
The Economy Ministry has suggested reducing the fund’s target level to 5 percent. When the stockpile reaches that level, the ministry has proposed creating a development fund within the budget for infrastructure spending and financing it with extra revenue from energy sales, according to Belousov.
Investment in “a major part of projects in transport infrastructure development will never be recouped,” Belousov said. “These projects must be funded from the budget -- there’s no other source.”
The Reserve Fund held $62.1 billion in assets as of Jan. 1, more than twice the level at the end of last year and 43 percent below the peak level of $142.6 billion in August 2008. The stockpile is projected to reach 4.8 percent of GDP by the end of 2013, 5.2 percent the following year and 5.7 percent by end-2015, according to Russia’s three-year debt strategy published on the Finance Ministry website.
“The 7 percent target is likely to be reached in 2016 or at the end of 2015, if oil prices stay near $110 a barrel, but that’s too late,” Belousov said. “We will just lose three years.”
According to Economy Ministry calculations, reducing the Reserve Fund’s target level to 5 percent will unlock about 100 billion rubles ($3.34 billion) in 2015 and as much as 400 billion rubles after that, for the proposed development fund, according to Belousov.
The Reserve Fund must be seen as a rainy-day fund that enables the government to cushion the budget and economy from swings in oil prices or international markets, according to the International Monetary Fund.
“We think 7 percent is a minimum,” Odd Per Brekk, the senior resident representative of the IMF, said in October. “It should probably be higher than that.”