Stock Groups

Putin seeks to rein in ‘rainy-day fund’ spending as energy transition looms By Reuters

© Reuters. FILEPHOTO: Russian President Vladimir Putin is seen after his meeting in Sochi with Turkish President Tayyip Erdogan on September 29, 2021, at Bocharov Ruchei. Sputnik/Vladimir Smirnov/Pool via REUTERS

By Darya Korsunskaya

MOSCOW (Reuters). President Vladimir Putin directed the Russian government Friday to reduce spending on the state rainy day fund. This was after the Russian finance ministry warned that the shift from oil and natural gas would have a detrimental effect on Russian state finances in ten years.

Russia has approximately $190 billion to its National Wealth Fund. This is around 7.3% GDP. The liquid assets that Russia has raised mostly from the sale of oil and natural gas are around $115 trillion.

Now, the government can spend liquid assets above 7% of GDP. Putin instructed the cabinet, however to consider raising this threshold to 10%. This could reduce future spending by many billions.

Last week, the government revealed plans to invest $34 Billion from the fund in the following three years.

Dmitry Peskov, a Kremlin spokesperson said that the NWF must be maintained. The role of the NWF has been increasing as the Russian financial and economic environment is unpredictable.

The Kremlin released its document a day following draft budget amendments from finance ministry. It described potential risks to state finances due to global transition away fossil fuels and suggested “an especially cautious approach to investing surpluses into the wealth fund” while energy prices are high.

Russia’s largest energy client, the EU, has set a goal to achieve “net zero” emissions in 2050.

According to the Russian finance ministry, the average price for Russia’s Urals oil will fall to $55.7 per barrel in 2024, from $66 this year. This is due to lower demand as a result of the global effort to reduce carbon emissions.

According to it, global oil prices might fall to $35 per barrel in 2030 and to $25 by 2050, as the “demand for oil will fall dramatically if zero neutrality goals are announced by many countries,” said it.

Russia’s budgets could face pressure as soon as 2030 as emissions reductions are implemented. According to the ministry, in the worst case scenario, the wealth funds could be reduced to as low as 3% from the GDP for 2030-31.

Disclaimer Fusion MediaWe remind you that this site does not contain accurate or real-time data. CFDs are stocks, indexes or futures. The prices of Forex and CFDs are not supplied by exchanges. They are instead provided by market makers. As such, the prices might not reflect market values and could be incorrect. Fusion Media is not responsible for trading losses that may be incurred as a consequence of the use of this data.

Fusion MediaFusion Media and anyone associated with it will not assume any responsibility for losses or damages arising from the use of this information. This includes data including charts and buy/sell signal signals. You should be aware of all the potential risks and expenses associated with trading in the financial market. It is among the most dangerous investment types.

Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.