Why only a small fraction of Russia’s 18-trillion-ruble safety cushion can be used to support the economy during the COVID-19 crisis

As of the beginning of spring quarter 2020, Russia’s liquid assets on the regional, federal, and extrabudgetary levels totaled 17.7 trillion rubles ($234.9 billion), the business newspaper RBC calculated. That’s more than 16 percent of the country’s GDP.

However, only a small slice of that amount is legally available to the government for stimulus spending as the country dives into an economic crisis. That’s because of something called the “budget rule,” a measure passed in 2017 that assumes a certain price of oil in composing the federal budget and manipulates surplus funds based on how accurate that assumption is.

This year, if oil prices are more than $42.40 per barrel, all oil profits made beyond that price must be channeled into the National Wealth Fund (FNB) rather than the government budget. However, if oil prices are below the $42.40 mark (and they very much are at the moment), then funds from the FNB must be used to cover the gap in oil profits, and they cannot be used for anything else.

Russia’s executive cabinet has so far allocated 1.4 trillion rubles ($18.6 billion, or about 1.3 percent of Russia’s GDP) to stimulate the economy as falling oil prices and the COVID-19 pandemic take their toll. Economists estimate that unless the budget rule is reconsidered, that number could only rise to 2.4 percent of GDP. However, Alexey Kudrin, the head of Russia’s Accounts Chamber, told RBC that the country will need a support package that amounts to at least 7 percent of GDP.

Experts believe Russia’s Finance Ministry is highly reluctant to change the budget rule because such a move could mean losing trust from world markets. Government officials have so far resorted to other creative budgetary strategies to free up money for stimulus spending.

(C)MEDUZA 2020

One comment

  • onlyfactsplease

    And that’s only one reason why I hope that the low oil price will remain low. It’ll hurt mafia land more than all the sanctions put together.

    Liked by 4 people

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.