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Putin rebuilds financial strength as reserves grow

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By Evgenia Pismennaya and Anya Andrianova

(Bloomberg) –

Rising oil and gas revenues have pushed Russia’s wealth fund to record highs, but President Vladimir Putin wants to save the extra money for a rainy day.

After approving $ 35 billion in infrastructure projects from the fund this year, Putin has told the government to limit additional spending. Officials close to the process say there aren’t many more well-prepared companies left in the pipeline anyway.

“Being frugal with oil revenues is very positive for Russia’s attractiveness to foreign portfolio investors,” said Elina Ribakova, deputy chief economist at the International Institute of Finance in Washington. “Not everything can be controlled from the center, even with the best of intentions. We have seen poorly managed investment projects for decades. “

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Putin called the low income of millions of Russians “the main enemy” earlier this week. Still, it has stuck to its long-standing focus on limiting debt and rebuilding reserves quickly after boosting spending last year amid the Covid-19 pandemic. He proposed only modest increases in social spending, even as the government is likely to receive about $ 40 billion in additional oil and gas revenue this year, according to Fitch Ratings.

“The general line suggests a return to pre-Covid-19 structures with a nearly balanced budget prioritizing savings in buffers over investments with a moderate borrowing plan,” Artem Zaigrin, an economist at Sova Capital, wrote in a note. .

For the wealth fund, that means Putin wants to raise the threshold at which the government can start spending on infrastructure projects to 10% of GDP from the current 7%. Fueled by oil and gas revenues, the fund is not expected to reach the highest threshold until the end of next year.

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The government predicts the fund will break $ 300 billion in 2024, up from $ 190.5 billion now. The Finance Ministry says the extra money is needed “to reduce the long-term budget and macroeconomic risks that could arise from the energy transition,” a reference to the possibility of a shift from oil and gas to low energy sources. on carbon in major Consumer markets could deal a severe blow to Russia’s finances.

“The government is afraid to spend more of the oil revenues because prices sometimes go up but they also go down,” said Oleg Vyugin, a former senior central bank official. “The untouchable part of the wealth fund is increased in case of economic and political problems.”

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