Slon.ru cites Mr. Nikolai Kasheev, Research and Analysis Director with Promsvyazbank, who talks about the relative weakness of Russian reserve funds. Similar funds exist in 44 countries including China, which operates four national funds with a total value of close to USD 1.5 trillion. Next in terms of value are the seven United Arab Emirates’ funds with USD 1.3 trillion in assets, Norway with USD 850 billion in its state pension fund and Saudi Arabia with reserves of USD 760 billion.
With assets of USD 150 billion, Russian reserve funds are only the 10th in terms of value. In per capita terms, Norway is the absolute leader with USD 160,000 in reserve funds per each inhabitant. With USD 1,000 in reserve funds per capita, Russia is way down the list together with China. For example, neighboring Kazakhstan has USD 9,000 per capita in reserve funds. According to Mr. Kasheev, Russia managed the funds too conservatively and passed up on the opportunity of bigger returns by investing almost exclusively in government debt securities – a dubious practice given their long-term investment horizon.
According to the IMF, pension outlays in Russia are projected to increase from 8-9% of BDP to 14% of BDP by 2030. The Russian pension fund is already USD 50 billion short every year, but instead of using the reserve funds to compensate for this shortfall, the Russian Government is using them to patch up the central budget.
Spending all the reserve funds’ money, which is projected to happen by the end of next year, will significantly impact the macroeconomic conditions in the country. It could lead to increasing debt and budget cuts with uncertain effects on the exchange rate and overall liquidity. However, it is not the presence of the reserve funds that impresses the business and makes it willing to invest and operate in Russia. Rather, it is the necessary structural changes that will lead to a more diversified economy.