Russia to spend $34 billion from rainy-day fund despite inflation worries By Reuters
By Darya Korsunskaya and Katya Golubkova
MOSCOW (Reuters) – Russia will spend around 2.5 trillion roubles ($34 billion) from its National Wealth Fund (NWF) in the next three years to help revive economic growth after the pandemic but must also take care not to drive up inflation, officials said on Tuesday.
The amount represents an increase from 1.6 trillion roubles agreed only this month by the government and central bank, with the extra cash earmarked for the Ust-Luga liquefied and gas-to-chemicals complex, a project involving Gazprom (MCX:).
United Russia Party supports the spending plan strongly. This party, which backs Vladimir Putin, won close to 50% of votes during a sept 17-19 parliamentary elections that was marred by mass corruption.
Without causing inflation which has been taking a toll on Russians’ lives, the government expects that these huge spending plans will lead to robust growth.
The government is seeking growth sources and the NWF, which pulls in private investment is not a bad instrument. Anton Siluanov, the Finance Minister said that it is important for inflation to be controlled and central bank’s interest rates to remain stable.
The economy ministry increased its year-end inflation forecast from 5% to 5.8% on Tuesday. This is higher than the central bank target of 4.4%.
Russia saw five rate rises in this year’s attempt to slow price growth.
The central bank has warned of inflationary risks if the NWF, a cushion for Russia’s oil revenues and which totalled $190.5 billion as of Sept. 1, is spent too freely.
Siluanov explained that foreign equipment will be purchased with the extra 900 billion Russian rubles. This should have minimal impact on monetary policy.
According to the Economy Ministry, rates hikes by Russia’s central bank have already slashed 0.2 percentage points Russia’s 2022 forecast of economic growth. This is currently at 3.3%.
Russia has already distributed 900 billion rubles to balance the budget, as per the original plan for 2023-24. Siluanov also stated that Russia provided 190 billion rubles to VEB, the Russian development corporation, in order not only to increase the spending but also make it more equitable.
According to the central bank, it is likely that rate increases will continue at its next board meeting. The economy ministry increased this year’s forecast for GDP growth to 4.2%, despite warnings about the potential risks that rate increases may present. This is a significant increase from the July estimate of 3.8%.
Russia has a surplus in its budget this year. This will be maintained by new taxes on fertiliser, metals and coal producers. The presidential election year 2024 will see Russia return to deficit.
($1 = 72.9891 roubles)
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