NY Dispatches: Russia’s growing Welfare Fund

Russia’s frugal fiscal planning and the recovery of oil prices may land some extra money for the government to spend in the next two years, before the 2021 legislative election. Who gets this money, when and how will say a lot about the changing balance of power within the political elite as well as about Vladimir Putin’s contingency plans. 

Russia’s National Welfare Fund, the country’s sovereign wealth fund more than doubled in July to about 124 billion USD (7.8 trillion rubles). The increase was the result of a financial maneuver of the Ministry of Finance, which added money to the fund’s accounts from oil revenues. Most of the NWF is tied down in long-term investments, however, the new money increased the liquid part of the fund, which has now reached 5.7 percent of Russia’s GDP. This is important because the government is free to spend any surplus above a 7-percent threshold. The Ministry estimates that the fund will surpass this threshold later this year – both the IMF and the government estimate the economy to grow faster on the back of increased infrastructure spending and the reform of the pension system (although estimates differ) – which will make 1.8 trillion rubles available in 2020 and 4.2 trillion in 2021.

Let’s put this astronomical number into perspective. 1.8 trillion is significantly bigger than the net 2018 profit of Rosneft, Russia’s state-owned oil company (549 billion). It is just shy of Russia’s planned budget surplus in 2019 (1.9 trillion) – the existence of which is one of the main reasons why the NWF was able to grow – and a little less than the total public debt of Russia’s regions was in August 2018 (2.16 trillion). It is a little over half of what the federal budget spent on compensating the pension system’s deficit in 2018 (3.35 trillion). It falls significantly short of the total cost of Vladimir Putin’s twelve “national projects” (estimated at 25.7 trillion across six years). However, the liquid part of the NWF that the Russian government plans to be able to spend in 2020-21 surpasses the 5.6 trillion rubles that it is planning to spend on these projects in 2019-21.

In his seminal 1936 work Harold Lasswell, a political scientist defined politics as “who gets what, when, how”. Indeed who gets the liquid part of the NWF and how will tell us a lot not only about the changing balance of power within the political elite but also about Vladimir Putin’s priorities before key legislative elections in 2021 that will determine the composition of the legislature sitting in 2024 when Putin’s fourth and likely final presidential term ends.

Candidates to get at least part of the money abound, from the cash-starved, sanction-squeezed energy industry that needs funds to finance extractive projects, to indebted and increasingly restive regions, dilapidated road networks and a puttering health care infrastructure. There definitely is an incentive to use the money to dampen public resentment over growing poverty, falling real wages and the government’s unpopular pension reform.

Even if the Finance Ministry’s calculations are right, the resulting money can realistically be spent on one or two bigger goals in order for it to make a tangible impact. In the past years, the government has become increasingly reactive and presently does not seem to be ready or able to offer voters anything else than symbolic concessions when protests only concern local matters and the regime’s secondary currency (money) and harsher repression when they concern its primary currency (the monopoly of power). Together with an increasingly nervous political elite seeking short-term cash-outs and opportunities to hedge against losses in the post-Putin era, it is hard to see the Kremlin coming up with a bulletproof plan to use the surplus of the NWF. It will certainly try to come up with one – but it is more likely to be a mirror of the president’s concerns and contingency plans than anything else.

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