MinEconomy considers Reserve Fund at 5% of GDP
Yesterday, Minister for the Economy Belousov stated that in order to develop the highways infrastructure, investments needed to be increased from 3% of GDP at present to 4.5% of GDP. He also proposed a solution relating to easing the ‘fiscal rule’. In particular, Belousov considered a cut in the required volume of the Reserve Fund from 7% of GDP to 5% of GDP (to note, when the Urals price is higher than the baseline one, all additional revenues are to be transferred to the Reserve Fund, and after it reaches the target level, at least a half of additional revenues are to be delivered to the National Wealth Fund and to infrastructure projects).
Yesterday, President Vladimir Putin signed the law on the federal budget for 2013-15, which is constructed under the ‘fiscal rule’ and implies a target level for the Reserve Fund at 7% of GDP, as this is the level which provides a sufficient cushion to protect the three-year fiscal programme from a sharp short-run decline in oil prices. Currently, the volume of the Reserve Fund is around 3% of GDP. Once the ‘fiscal rule’ is in place, we think it will bring a new reality for the Russian authorities, when expenditures cannot be increased in volume but need to be improved in quality. We see this as a positive move towards a more prudent fiscal policy over the long term.
Maxim Oreshkin, Daria Isakova, Mykyta Mykhaylychenko, Dmitri Fedotkin
VTB Capital analyst
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