The CEO of VEB and former deputy PM Shuvalov proposed to use money from the National Wealth Fund (NWF) to improve the infrastructure in 100 large Russian cities. This includes projects for water treatment, transportation, housing, etc. So far there is no decision by the government, but this proposal adds to pressure to spend money from the NWF on domestic investment projects and we expect the issue to become a major topic in autumn. While Russia clearly needs to increase spending on infrastructure, using fiscal reserves for this has been criticized by the CBR and the Audit Chamber, as well as external observers like the IMF.
The liquid part of the NWF will exceed 7% of the GDP next year and the excess can be invested in domestic projects, which would be similar to relaxing the budget rule and fiscal loosening. In theory, the amounts can be very significant at 2-4% of GDP per year, but we strongly doubt the entire excess will be invested in this way. In its recent decision to upgrade Russia, Fitch also said that the scale of these investments is unlikely to reverse the progress made after the introduction of the fiscal rule.