Russia Blows Through Wealth Funds as Plans Said to Focus on Debt

  • Cabinet may drain one wealth fund, tap another, officials say
  • Finance Ministry proposal calls for greater domestic borrowing

Russia won’t spare one of its two sovereign wealth funds and plans to unseal the other as the government navigates three more years of budget deficits.

An annual limit on foreign borrowing will stay at $3 billion under the Finance Ministry’s proposals for drafting a 2017-2019 budget program, according to three officials familiar with the plans, who asked to remain unidentified because the discussions aren’t public. As it drains the reserves, net debt sales at home will more than quadruple next year to 1.29 trillion rubles ($20 billion), one of the officials said.

Under the proposal, the government will fully deplete the $38 billion Reserve Fund next year, according to one of the officials. Another 783 billion rubles will be taken from the National Wellbeing Fund, originally created to cover long-term outlays for social spending such as supporting the pension system, the person said.

Oil producers from Norway to Saudi Arabia are adjusting to the collapse in crude prices by tapping rainy-day funds accumulated during the boom years as they seek to bolster their budgets. Russia, the world’s largest energy exporter, has amassed its reserves by funneling windfall revenue from oil and gas sales -- beginning in 2004 -- into what was then known as the Stabilization Fund. The holdings were later split in two.

Faster Depletion

The discussions in Russia suggest the government may have to dip deeper into its reserves than had previously been envisaged. Last month, Finance Minister Anton Siluanov only conceded the possibility that the National Wellbeing Fund may be used next year.

The rainy-day stockpile will shrink by more than a third to 2.97 trillion rubles by the end of 2019, one of the officials said.

The Finance Ministry in Moscow didn’t respond to a request for comment.

Russia is already running its widest deficit since 2010 this year, with public finances under pressure after the crash in oil. The Finance Ministry has proposed keeping the fiscal gap at 3 percent of economic output in 2017 and reducing it by one percentage point each year to balance the budget by 2020.

Before it's here, it's on the Bloomberg Terminal.