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Putin seeks to rein in 'rainy-day fund' spending as energy transition looms

Putin seeks to rein in 'rainy-day fund' spending as energy transition looms

FILE PHOTO: Russian President Vladimir Putin is seen at the Bocharov Ruchei state residence after a meeting with Turkish President Tayyip Erdogan in Sochi, Russia September 29, 2021. Sputnik/Vladimir Smirnov/Pool via REUTERS

MOSCOW: President Vladimir Putin ordered the Russian government to look at curtailing spending from the state rainy-day fund on Friday (Oct 1), after the finance ministry said the global shift away from oil and gas could jeopardise Russian state finances within a decade.

Russia now has around US$190 billion in its National Wealth Fund, around US$115 billion of which, or 7.3 per cent of GDP, is liquid assets raised mainly from selling oil and gas.

The government is now permitted to spend liquid assets that accumulate above 7 per cent of GDP. But Putin ordered the cabinet to look into raising that threshold to 10 per cent, potentially reducing future spending by tens of billions of dollars.

The government announced plans last week to invest US$34 billion from the fund over the next three years.

"Without doubt, the NWF needs to be preserved," Kremlin spokesman Dmitry Peskov told reporters on Friday. "And as the global financial and economic situation surrounding Russia is quite unpredictable and contains crisis risks, the role of the NWF is increasing."

The Kremlin's document was released a day after draft budget amendments from the finance ministry described risks to state finances from the global transition away from fossil fuels, and recommended "an especially cautious approach" to investing surpluses in the wealth fund while energy prices remain high.

The EU, Russia's main energy customer, aims to reach "net zero" emissions by 2050.

The Russian finance ministry sees the average price of Russia's flagship Urals oil falling to US$55.7 per barrel in 2024 from US$66 per barrel this year on projected weaker demand from the global push to cut carbon emissions.

Global oil prices may fall to as low as US$35 per barrel in 2030 and further to US$25 per barrel by 2050 as "demand for oil would fall drastically should zero-neutrality goals announced by a number of countries become a law", it said.

Emissions cuts could put pressure on Russia's state budgets as soon as the early 2030s. In the most severe scenario, the wealth fund could shrink to as little as 3 per cent of GDP in 2030-31, the ministry said.

Source: Reuters

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