Azernews.Az

By Bloomberg

Russia’s Reserve Fund, one of the country’s two sovereign wealth funds, dropped last month the most in more than four years as the government unsealed it to cover a widening budget deficit.

The value of the fund fell $8 billion in February to $77.1 billion, the lowest since December 2012, as the Finance Ministry used its maximum yearly allowance of 500 billion rubles ($8 billion) for budget financing, according to a statement by the ministry on Tuesday. The fund disposed of $3.6 billion, 3.1 billion euros ($3.5 billion) and 510 million pounds ($769 million).

The world’s biggest energy exporter, entering its first recession in six years, uses the fund to cover its burgeoning shortfall after the price of oil, which together with natural gas accounts for about half of state revenue, fell to the lowest since 2009. The Finance Ministry last week said it wants to dip deeper into the fund as the deficit may be 3.8 percent of gross domestic product this year.

“The reserves provide not only stability, but also financial certainty,” Finance Minister Anton Siluanov said Monday. “If we eat through our reserves, we’ll lose that stability and won’t have the resources to finance the budget deficit.”

Russia, facing higher borrowing costs in global markets amid U.S. and European Union penalties after President Vladimir Putin’s incursion in Crimea a year ago, doesn’t expect to borrow abroad in 2016 after already ruling out issuing foreign bonds in 2015, according to Siluanov.

Shrinking Fund

The Reserve Fund may shrink to 519 billion rubles by the end of 2016, as the Finance Ministry wants to use 3.67 trillion rubles, including 500 billion rubles approved earlier, this year and 1.16 trillion rubles next year, the ministry said. It estimates the fund will increase to 630 billion rubles in 2017.

The reserves will allow the government to decide on gradual cuts in budget spending as state revenue will contract, according to Siluanov.

“During the three years, it’s necessary to take structural measures to cut our spending liabilities, which we can’t cope with in these conditions,” he said.

The ministry, which will submit budget amendments to the government on Wednesday, estimates that federal budget revenue will be 2.6 trillion rubles less than earlier planned at 12.5 trillion rubles in 2015, 1.8 trillion lower next year at 14 trillion rubles next year and 1.3 trillion below target at 15.2 trillion rubles in 2017. The changes will need lawmaker approval.