The Russian Ministry of Finance announced on March 19 that it has transferred last year's budget surplus to the National Welfare Fund (NWF), which now amounts to about RUB12,200bn ($157.2bn), or 11% of GDP, reported Bank of Finland Institute for Economies in Transition (BOFIT) in its weekly update.

The reserve fund can be used to cover a budget deficit in times of crisis, and held some RUB8tn ($123bn) at the start of March, or 7% of GDP.

Finance Minister Anton Siluanov said earlier this month that the current crisis would blow a RUB3tn hole in the budget that will be covered by withdrawals from the NWF. If nothing changes and Russia continues to run RUB3tn budget deficits because of persistent low oil prices then there is enough in the fund to last four years – and that is without cutting spending from the planned budget due to run to 2022 or raising taxes. Siluanov said earlier that the amount of money in reserves was enough to endure a decade of low oil prices.

The reason for the sudden jumps in the NWF recently is due to an accounting quirk. The fund is administered by the CBR which reports on its size; however, the Ministry of Finance is the one that collects the taxes and oil duties that feed the fund, which it holds in special accounts before formally transferring this cash to the fund periodically. Normally that money comes from surplus revenues earned from oil exports when the prices are over $42 per barrel, but this latest uptick was due to Ministry of Finance transferring the budget surplus left over from 2019 to the NWF war chest. (This so-called budget rule has been suspended until April, allowing the Ministry of Finance to spend surplus oil revenues rather than send them to the NWF.)

More money is being made available to fight the coronavirus (COVID-19) crisis as a planned sale of the CBR’s stake in retail banking giant Sberbank to the Ministry of Finance will mean the transfer of another dollop of money to the NWF. In February, the CBR and the Ministry of Finance agreed that the central bank would sell its stake (50% and one share) in Russia's largest bank to the Ministry of Finance, which increases the central bank's distribution of profits to the state. 

In the meantime, the CBR has continued to build up the gross international reserves (GIR). As of Friday, March 13, Russia's foreign exchange reserves (including gold) reached $581bn, their highest level since August 2008.   However, in the last week the CBR has begun to sell currency from its reserve to prevent rapid fluctuations in the foreign exchange market. But what selling is happening has been relatively small, of the order of $75mn a day, as the CBR remains prudent and would rather let the ruble’s value fall than burn through its reserves in an effort to maintain the currency’s value.

The CBR manages the liquid assets of the National Welfare Fund as part of its foreign exchange reserves. If the Treasury needs money from the fund, it will withdraw it from the central bank in rubles, so the size of the foreign exchange reserves will not change, according to BOFIT.