Russian National Wealth Fund

Russian National Wealth Fund
Native name
Фонд национального благосостояния России
IndustrySovereign wealth fund
Founded2008
Total assets$130.8 bn (February 2024) [1]
Websiteminfin.gov.ru/en/key/nationalwealthfund/
National Wealth Fund, 2008–2017, with the blue line showing the nominal value in billion USD and the amber line showing the nominal value in billion RUB

The Russian National Wealth Fund (Russian: Фонд национального благосостояния России) is Russia's sovereign wealth fund. It was created after the Stabilization Fund of the Russian Federation was split into two separate investment funds on 30 January 2008.

Fund development

The rainy-day Reserve Fund is used to buffer the national budget, which is strongly tied to the price of crude oil

The two funds were the Reserve Fund, which was invested abroad in low-yield securities and used when oil and gas incomes fall, and the National Wealth Fund, which invests in riskier, higher return vehicles, as well as federal budget expenditures. The Reserve Fund was given $125 billion and the National Wealth Fund (NWF) was given $32 billion. The Reserve fund was exhausted by 2017. The Reserve fund had been depleted by budget deficits and the low oil price prices and it was emptied by the end of 2017 [2] and ceased to exist, leaving the National Wealth Fund as the sole reserve fund.

In October 2008 the National Wealth Fund was permitted to invest in shares on the Russian Stock market, to support the country’s financial markets by buying shares in Russian companies, until December 2009. Support was also provided from the NWF to Russian banks, making the NWF a “lender of last resort” to banks. [3]

One of the fund's main responsibilities is to support the Russian pension system,[4] and since the closure of the Reserve Fund also funds budget deficits.

Once the NWF's liquid assets exceeds 7% of GDP, the Government can use monies from the NWF, as it proposed to do in 2020 to fund infrastructure projects .[5]

The budget for 2022 set an oil price of $44.2 per barrel, with the NWF receiving money if the price was over the set price and selling assets to support the government budget if the price was lower. In 2023 this was changed to set an annual target of $8 trillion rubles revenues from oil and gas, anything below that seeing funds being taken from the NWF to support the budget, anything above being added to the NWF.[6] As it turned out, the revenue in 2023 was 8.8 trillion rubles.

Following the Russian invasion of Ukraine in 2022 1 trillion rubles ($10 billion) was ordered to be invested by the NWF in shares in Russian companies to support the stock markets and aid Russian companies.[7] In January 2023 changes were proposed to allow "anti-crisis" investments to be made, with a cap of 4.25 trillion roubles ($61.24 billion) on these investments, irrespective of liquidity levels in the Fund which at that date stood at $87.2 billion, or 4.6% of GDP.[8]

For 2024, Russia changed the funding rules again, so that the NWF will not receive the expected 2024 11.5 trillion rubles of oil revenue, which will go directly to the Russian budget instead, with just 1.8 trillion rubles being given to the National Wealth Fund in 2025.[9] The rules also changed to recover the 2023 surplus that had been paid to the NWF, so that from late 2023 the central bank restarted dealing in currencies in the NWF, to sell the budget adjustment of 2023, where 11.8 billion rubles will be sold daily until 28 June 2024. Currencies would also be sold/bought for the expected 2024 budget adjustment based on a set $60 per barrel, expected to be 0.8 billion rubles per day sold on average.[10][6] This will reduce both the fund value and the liquid assets by around 2.3 trillion rubles by the end of 2024. The 2024-6 budget expects the NWF to hold a reduced 11.1 trillion rubles at January 2025 and 13.0 trillion at January 2026.[11]

Overview

The National Wealth Fund will receive funds from investment returns and any excess funds from oil and gas revenues.[4] The existence of the NWF helps with the credit rating for Russia, by providing a reserve to provide "resilience to short-term shocks".[12]

According to the Russian Ministry of Finance, the foreign debt securities the fund can invest in must have credit ratings of AA− or higher by Fitch or Standard & Poor's, or a rating of Aa3 by Moody's.[4] Despite this, the fund agreed to buy (on 17 December 2013) $15 billion of Ukrainian Eurobonds, despite the fact that Ukraine had lower credit ratings at the time.[4][13][14]

The NWF stands out from other global funds with it gathering investments into the national economy itself instead investing everything overseas, so it can provide a boost to the slow modernization of Russian infrastructure in a time of otherwise anemic investment. Other countries like Indonesia are following the Russian example in running a National Wealth Fund it is reported in 2020.[4] Of course, because of a lack of a real "hard currency" reserve, the fund can quickly lose value in a case of internal crisis.

In 2016 the NWF had invested $2.6 billion in the Yamal LNG plant.[15]

In 2020 the NWF bought 50% +1 share in Sberbank from Russia's Central Bank.[16]

Starting from 2024, the NWF will invest $3.2 billion in an $11.2b project to build 600 civilian aircraft which will be sold to airlines at a below cost price.[17]

Administration

The National Wealth fund is controlled by the Ministry of Finance.

Expenses of the NWF are limited in 2023-2025 to 8 trillion rubles ($114 billion)[18]

Funds comprise liquid assets and long term investments. In December 2022 long term investments stood at 4.3 trillion rubles, with liquid assets at 6.1 trillion rubles.[19]

Previously holding liquid assets in US dollars, Euros, UK Pounds, Yen, Yuan and Gold, Russia began selling some Sterling and all the US dollars in the summer of 2021,[20] whilst buying Yuan to reach 30% and Euros to reach 40%, Sterling and Yen each at 5% and Gold 20% of the liquid fund value. After the start of the Ukraine war, Russia then decided to close the Euro holdings aiming to achieve this before the end of 2023 in favour of Chinese yuan, which would be limited to 60% of the fund value, with gold limited to 40% of the liquid fund value.[21]

Fund composition

1 February 2022 ($177 billion) comprising: 38.56 billion euro (worth $41 billion), 4.17 billion pounds sterling (worth $5 billion), 600.30 billion Japanese yen (worth $4 billion), 226.70 bln Chinese yuan (worth $30 billion), 405.70 tons of gold (worth $28 billion) and 142.1 billion rubles (worth $2 billion) with $67 billion of other non liquid assets.[22]

1 November 2023 ($146 billion) comprising: 3.66 billion euros (worth $4 billion), 279.77 billion Chinese yuan (worth $37 billion), 508.26 tons of gold (worth $33 billion), and 261.8 million rubles (worth $0 billion) plus other non liquid unnamed assets (valued at $72 billion).[23]

1 January 2024 ($133 billion) comprising: 227.33 bln Chinese yuan (worth $31 billion), 358.96 tons of gold (worth $25 billion) and 1.514 bln ruble (worth $1 billion) plus other non liquid unnamed assets (valued at $76 billion).[24]

Major changes in National Wealth Fund values

  • In the second half of 2019, the effect of an OPEC+ agreement to increase oil prices resulted in Russia receiving a high level of revenues, allowing 4.04 trillion rubles ($65.1 billion) to be added to the NWF.[25]
  • In 2020, despite COVID-19 effects on the economy the NWF values increased by 50%, helped by high oil prices, a surplus in the Russian budget in 2019 and an investment in Sberbank. NWF purchased 50% +1 shares in 2020 for 2.14 trillion rubles.[26]
  • In 2022, with very high oil prices, additional funds would normally have been added to the Fund, however with the cost of the war with Ukraine, in October $16.2 billion was withdrawn from the $127.9 billion liquid portion of the NWF.
  • In 2023, the budget deficit in December 2022 of 3.8 trillion rubles (€49.4 billion)[27] and the effect of the 2022 Russian crude oil price cap sanctions required $38.1 billion to be withdrawn, with further withdrawals expected in 2023 as a result of the continuing sanctions over crude oil.
  • Russia sold 2.9 trillion roubles ($32 billion) of liquid assets in December 2023, to cover the planned budget deficit.[24]

Size of the fund and historic numbers

Source by the Ministry of Finance of Russia:[28]

National Wealth Fund value
Date billions of $ billions of ₽ % of GDP liquid
assets ₽b 		Ref.
1 February 2008 32.000 783.3 1.9% 783 [28]
1 January 2009 87.970 2 584.4 6.3% 2 584 [28]
1 January 2010 91.560 2 769.0 7.1% 2 769 [28]
1 January 2011 88.440 2 695.5 5.8% 2 695 [28]
1 January 2012 86.790 2 794.4 4.6% 2 794 [28]
1 January 2013 88.590 2 690.6 4.0% 2 690 [28]
1 January 2014 88.630 2 900.6 4.0% 2 900 [28][29]
1 January 2015 78.000 4 388.0 5.3% 4 388 [28][29]
1 January 2016 71.720 5 227.1 6.1% 5 227 [28][29]
1 January 2017 71.870 4 359.1 4.7% 4 359 [28][29]
1 January 2018 65.150 3 752.9 3.6% 3 752 [28][29]
1 January 2019 58.100 4 036.0 3.7% 4 036 [28][29]
1 January 2020 125.560 7 773.0 7.3% [29]
1 January 2021 183.360 13 545.6 11.7% 8 659 [30]
1 November 2021 197.750 13 945.0 12.1%
1 February 2022 174.900 13 610.2 10.2% 9 730 [22]
1 August 2022 201.000 12 155.0 9.1% [31]
1 October 2022 187.900 10 792.0 8.1% 7 873 [32]
1 January 2023 148.400 10 434.5 7.8% [33][34]
1 February 2023 155.300 10 807.6 7.2% [35]
1 March 2023 147.200 11 106.4 7.4% 6 450 [36]
1 April 2023 154.500 12 281.9 7.9% 6 710 [37]
1 May 2023 162.000 12 475.6 8.3% 6 820 [38]
1 June 2023 153.100 12 356.7 8.2% 6 640 [39]
1 July 2023 145.580 12 670.2 8.4% [40]
1 August 2023 146.300 13 313.0 8.9% 7 183 [41]
1 September 2023 142.800 13 704.0 9.1% 7 252 [42]
1 October 2023 140.106 13 648.0 9.1% 7 140 [43]
1 November 2023 146.310 13 541.0 9.0% 6 930 [23]
1 December 2023 151.129 13 432.9 9.0% 6 740 [44]
1 January 2024 133.407 11 965.0 8.0% 5 010 [24]
1 February 2024 130.800 11 922.0 6.6% 4 900 [1]
1 March 2024 135.000 12 258.0 6.8% 5 045 [45]

Major reductions in the National Wealth Fund liquid assets

Withdrawals
Date billions of $ reason Ref.
June 2020 12.5 to cover budget deficit [46]
March 2022 10.0 to buy Russian company shares [47]
October 2022 16.2 to cover budget deficit [48]
January 2023 38.1 to cover budget deficit [49]
March 2023 7.0 to cover budget deficit [50]
Through 2023 12.0 to support airlines and purchase leased aircraft [51][52]
December 2023 32.9 to cover budget deficit [24]

Sanctions

Following the 2022 Russian invasion of Ukraine, several countries imposed economic sanctions on Russian banks, individuals and companies. On February 22, 2022, United States President Joe Biden announced new restrictions on activities involving the National Wealth Fund.[53] The EU adopted sanctions in its 10th package in February 2023.[54]

Assets in June 2023 include €9 billion that is frozen in foreign banks by sanctions.[55]

See also

References

  1. ^ a b "Russia's Russia's National Wealth Fund totals $130 bln as of February 1 — Finance Ministry". 12 February 2024.
  2. ^ "Reserve Fund runs dry". 29 January 2018.
  3. ^ "Sovereign Wealth Funds as domestic investors of last resort during crises". Retrieved 13 April 2023.
  4. ^ a b c d e Ukraine bailout could derail Putin's drive to boost Russian economy, Financial Times (18 December 2013)
  5. ^ "Russia proposes $15.7 bln spend from National Wealth Fund in 2020-2022". Reuters. 2 December 2019.
  6. ^ a b "The Russian Federation Is Introducing A Mechanism For Transferring Excess Profits From The Oil And Gas Industry To The Budget". 11 January 2024.
  7. ^ "Russia to spend up to $10 billion from rainy-day fund on buying Russian shares, source says". Reuters. 1 March 2022.
  8. ^ "Russia Eyes End to Liquidity Caps on Wealth Fund 'Anti-Crisis' Spending". 26 January 2023.
  9. ^ "Russia to make extra $17.7 bln in energy revenues available to budget next year". 25 September 2023.
  10. ^ "Russian Central Bank To Resume Currency Trades in 2024". 27 November 2023.
  11. ^ "State Duma passes Russia's 2024-2026 federal budget". 17 November 2023.
  12. ^ "Russia: This annex refers to the release of the rating action of 29 October 2021". 29 October 2021.
  13. ^ Russia cuts Ukraine gas price by a third, BBC News (17 December 2013)
  14. ^ Ukraine to issue Eurobonds; Russia will purchase $15 bln, says Russian finance minister, Interfax-Ukraine (17 December 2013)
  15. ^ "Yamal LNG: an economic project under political pressure". 4 August 2016.
  16. ^ "Сбербанк могут продать без закона". Газета Коммерсантъ. Retrieved 11 November 2015.
  17. ^ "Russia to invest $9.7 bln in 2023 prices in project to build over 600 civilian aircraft". 15 January 2024.
  18. ^ "Russia to replenish National Wealth Fund in yuan from 2023 — Finance Ministry". 27 December 2022.
  19. ^ "Russian economy in 2022. Adaptation and a growing budget gap". 16 February 2023.
  20. ^ "Russia to convert around $40 bln from National Wealth Fund, says Accounts Chamber head". 10 June 2021.
  21. ^ "Russia to remove euro from National Wealth Fund". 9 February 2023.
  22. ^ a b "Russian National Wealth Fund down by $6.8 bln in February 2022, says ministry". 24 March 2022.
  23. ^ a b "Volume of National Wealth Fund reaches $146.31 bln as of November 1". 3 November 2023.
  24. ^ a b c d "Russia's National Wealth Fund totals $135 bln as of January 1 — finance ministry". 17 January 2024.
  25. ^ "Effect from OPEC+ deal was main cause of NWF doubling in 2019 — wealth fund". 22 January 2020.
  26. ^ "Russia's relative resilience: Why Putin feels vindicated by the pandemic". 17 December 2020.
  27. ^ "War unbudgeted for". 29 January 2023.
  28. ^ a b c d e f g h i j k l m "Ministry of Finance Russia, STATISTICS". Retrieved 25 December 2019.
  29. ^ a b c d e f g "RUSSIAN ECONOMY IN 2019 TRENDS AND OUTLOOKS (Issue 41)" (PDF). Retrieved 14 April 2023.
  30. ^ "The volume of the Russian National Wealth Fund tops $183.93bn as gold overtakes dollar asset for first time". 15 January 2021.
  31. ^ "Russian National Wealth Fund up almost $23 bln in July to over $200 bln, ministry says". 8 August 2022.
  32. ^ "Russia's National Wealth Fund increased by 582 bln rubles in Oct to 11.37 trln rubles, liquid part at 5.9% of GDP". 8 November 2022.
  33. ^ "Russia's National Wealth Fund at $148 billion at Jan 1 - Finance Ministry". euronews. 19 January 2023.
  34. ^ "Russia | National Wealth Fund: Total Amount | CEIC". www.ceicdata.com. Retrieved 18 March 2023.
  35. ^ "Russia | National Wealth Fund: Total Amount | CEIC". www.ceicdata.com. Retrieved 18 March 2023.
  36. ^ "Russia | National Wealth Fund: Total Amount | CEIC". www.ceicdata.com. Retrieved 18 March 2023.
  37. ^ "Russia's National Wealth Fund up $7 bn to $154.5 bln - finance ministry". 5 April 2023.
  38. ^ "Russia's National Wealth Fund totals $162 bln as of May 1 — finance ministry". 5 May 2023.
  39. ^ "Russia National Wealth Fund edges down to $153bln on June 1". 2 June 2023.
  40. ^ Ministry of Finance (20 July 2023). "Volume of the National Wealth Fund".
  41. ^ "NWF stands at $146.3 bln as of August 1 — Russian Finance Ministry". 4 August 2023.
  42. ^ "Russia's National Wealth Fund up 390 bln rubles to 13.704 trln rubles in Aug, liquid assets 4.8% of GDP". 6 September 2023.
  43. ^ "Russia's National Wealth Fund down 55.3 bln rubles to 13.65 trln rubles in Sept, liquid assets 4.8% of GDP". 5 October 2023.
  44. ^ "Russia's National Wealth Fund totals around $150 bln as of December 1 — finance ministry". 12 December 2023.
  45. ^ "Russia's National Wealth Fund totals $135 bln as of March 1 — finance ministry". 10 March 2024.
  46. ^ "BETTER ARMED TO HANDLE THE SHOCK". Retrieved 13 April 2023.
  47. ^ "Russia to Spend up to $10 Billion From Rainy-Day Fund on Buying Russian Shares, Source Says". 1 March 2022.
  48. ^ "Russia raids wealth fund to cover country's budget deficit". 20 October 2022.
  49. ^ "Russia rainy day fund shrinks by $38 bln as government plugs deficit". Reuters. 18 January 2023.
  50. ^ "Russia's National Wealth Fund up $7 bln to $154.5 bln in March - finmin". Reuters. 5 April 2023.
  51. ^ "European economy". 28 December 2023.
  52. ^ "Russia splashes $12 billion to keep aviation sector in the air". 21 December 2023.
  53. ^ "Fact Sheet: United States Imposes First Tranche of Swift and Severe Costs on Russia". The White House. 22 February 2022. Retrieved 23 February 2022.
  54. ^ "EU adopts 10th package of sanctions against Russia". 20 March 2023.
  55. ^ "Russia sells gold and yuan from its National Wealth Fund to finance budget deficit". 5 June 2023.
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