The National Wealth Fund declined by RUB405bn in November to RUB4.57 trillion, according to figures published by the FinMin on Wednesday. In dollar terms the decline was larger at USD7.1bn, reflecting also exchange rate fluctuations. As a result, the NWF is now at its lowest level since May. The November fall is explained by RUB460bn transfer to the federal budget for which the ministry sold USD2.38bn, EUR2.85bn and GBP0.98bn. Thus, the available forex assets of the fund fell to USD19.7bn, EUR17.64bn and GBP3.38bn. These forex sales are made directly to the CBR and do not affect the exchange rate.
In our view the current scheme is unnecessarily complex as the FinMin needs to sell forex from the fiscal reserve in order to finance budget spending, while simultaneously buying forex with the additional oil revenues. The accumulated amounts are also fiscal reserves, but will be formally added to the NWF in the first half of 2019. The initial idea was to stop the ruble from excessive appreciation in this way as one leg of the transaction (forex sales) was made directly with the Russia’s central bank, CBR, while the other (forex purchases) happened on the market. Since August both forex buying and selling is done directly with the CBR, but the CBR is likely to resume forex purchases from Jan 15.