1 Oct 2021 13:14

MinFin sees risks of budget sustainability by start of 2030s due to energy transition, suggest saving more in NWF

MOSCOW. Oct 1 (Interfax) - It is necessary to raise the ceiling for accumulation of money in the National Wealth Fund (NWF), as the tendency toward the energy transition and its associated risks of falling oil demand could already pose a threat to stability of the Russian budget in the relatively near future, according to the Finance Ministry.

It was reported on Friday that Russian President Vladimir Putin had instructed the government by October 15 to consider the feasibility of amending legislation in order to gradually increase the threshold of the National Wealth Fund (NWF) from 7% to 10% of GDP for monies to be allocated for investment above this figure. The instruction proposes that until this level is reached, it is not allowed to place NWF funds in other financial assets, with the exception of the list of infrastructure projects approved after October 1, 2021 in an amount not exceeding 2.5 trillion rubles.

The Finance Ministry set out the motives for this proposal in the draft main areas of the fiscal, tax, and customs tariff policy for 2022 and the planning period of 2023 and 2024.

"In the medium to long-term period, tendencies toward a downward trend in the oil market are likely to intensify alongside preservation of elevated price volatility. For the purpose of evaluating the stability of state finances against the stress scenarios, stress testing was carried out on the budget parameters, including depending on the path of the energy transition. The results of stress testing indicate that, should the most ambitious scenarios for reduction of emissions be realized, the issue of sustainability of the federal budget could already arise at the start of the 2030s. In light of this, it is necessary to take a particularly careful approach to investment of the additional revenues accumulated during the current period of relatively high prices. In order to reduce long-term risks associated with the energy transition, it is proposed to raise the minimum level of liquid reserve assets to 10% of GDP," the ministry said in the document, which has been published on its website.