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Russia Seeks to Dip Deeper Into Wealth Fund to Cover Deficit

Russia’s Finance Ministry is seeking permission to use more money from one of the country’s two sovereign wealth funds as a deteriorating economy and last year’s drop in oil prices dry up budget revenue.

The ministry in Moscow wants to use 3.1 trillion rubles ($50 billion) to 3.6 trillion rubles of the 5.9 trillion-ruble Reserve Fund, First Deputy Finance Minister Tatiana Nesterenko said in a statement on Friday. The government was previously able to use 500 billion rubles to cover the budget gap. The deficit may be 3.7 percent of economic output this year, the widest since 2010, she said.

Russia is on the brink of recession as the price of oil, which together with natural gas accounts for about half of state revenue, fell to the lowest since 2009. The effect was compounded by sanctions the U.S. and its allies imposed after President Vladimir Putin annexed Crimea from Ukraine a year ago. The Economy Ministry estimates gross domestic product will shrink 3 percent this year if oil prices average $50 a barrel.

“The Reserve Fund is one of the resources, almost the main resource, to cover the deficit,” Nesterenko said. The ministry will submit budget amendments to the government next week. The changes will need lawmaker approval.

Federal budget revenue as a share of GDP may be the lowest in 15 years at 17 percent, or 12.5 trillion rubles, according to the ministry’s estimates. Spending is forecast at 15.2 trillion rubles, or 20.8 percent of GDP, according to Nesterenko.

Reserves Fall

The Reserve Fund, which five years ago allowed the government to finance its first deficit since the country’s 1998 default, is included in foreign-currency and gold reserves.

The combined value of the stockpiles fell more than a quarter in the past 12 months to $364.6 billion on Feb. 20 as the Bank of Russia used its reserves to temper the ruble’s decline. The currency dropped 46 percent to the dollar last year, the second-worst performance among more than 170 currencies tracked by Bloomberg after the Ukrainian hryvnia.

Declining international reserves were one of the factors cited last week by Moody’s Investors Service as it followed Standard & Poor’s in cutting Russia’s credit rating to junk.

Under the stress exerted by a shrinking economy, wider budget deficits, continued capital flight and restricted access to international markets, Moody’s expects that foreign-currency assets “will likely decrease significantly again this year,” it said in a statement.

The Finance Ministry will coordinate with the Bank of Russia on transfers from the Reserve Fund to the federal budget as well as the timing of selling securities, Nesterenko said.