Stabilization Fund of the Russian Federation
Encyclopedia
The Stabilization fund of the Russian Federation was
established by resolution of the Government of Russia
on January 1, 2004, as a part of the federal budget to balance the
federal budget at the time of when oil price falls below a cut-off price, currently set at
US$27 per barrel. In February 2008 the Stabilization Fund was split into a Reserve Fund, which is invested abroad in low-yield securities and used when oil and gas incomes fall, and the National Welfare Fund, which invests in riskier, higher return vehicles, as well as federal budget expenditures. The Reserve Fund was given $125 billion and the National Welfare Fund was given $32 billion.
Furthermore the Fund is to serve as an important tool for absorbing excessive
liquidity, reducing inflation
ary pressure and insulating the economy of Russia
from volatility
of raw material export earnings, which was among the reasons of the 1998 Russian financial crisis. To prevent high inflation rates the fund is invested abroad only.
’s budget address of March 2007 and passed in April 2007, in February 2008 the Stabilization Fund will be split into a Reserve Fund, which will be invested abroad in low-yield securities and used when oil and gas incomes fall, and a Future Generations’ Fund (later renamed the National Welfare Fund), which will invest in riskier, higher return vehicles, as well as federal budget expenditures. Unlike the Stabilization Fund, the new funds will also accumulate revenues from oil products and natural gas.
On May 21, 2007, President Vladimir Putin
urged the government to pump surplus oil revenue into domestic stocks by buying Russian blue chips such as Gazprom
and Rosneft
, which have fallen since the beginning of the year, instead of foreign securities, which previously had been explicitly forbidden out of the fear of inflation.
the oil mining operations when the price for Urals oil exceeds the set cut-off price.
The capital of the Fund may be used to cover the federal budget deficit and
for other purposes, if its balance exceeds 500 billion ruble
s, Spending amounts are
subject to the federal budget law for the corresponding fiscal year.
As the capital of the Fund had exceeded the level of 500 billion rubles in
2005, part of its surplus was used for early foreign debt repayments as well as to
cover Russian Pension Fund's deficit. The details of these transactions in 2005 are
as follows:
("the Ministry of Finance") pursuant to procedure defined by the Government of the
Russian Federation ("the Government"). Some functions of asset management may
be delegated to the Central Bank of the Russian Federation
("the Bank of Russia")
in accordance with its agreement with the Government.
In accordance with the Fund's objectives its capital is to be invested in foreign
sovereign debt securities. Securities' eligibility criteria are subject to the
Government's approval.
The Ministry of Finance is empowered by the Government to establish the
Fund's currency composition and its strategic asset allocation in line with the
investment policy for the Fund's management.
The Ministry of Finance may use one or both of the following schemes
defined by the Government to invest the Fund's capital.
The Fund assets are currently invested solely under second scheme
(allocation to the Federal Treasury's accounts with the Bank of Russia).
investment are to correspond to the following requirements.
Debt secuirities on the date of purchase will have a minimum remaining
maturity of 0,25 years and not to exceed 3 years.
The Fund assets are currently invested in the following currency composition:
Currency composition and the maturity restrictions are applicable to all
Fund's assets and are subject to revisions by the Ministry of Finance.
Fund's accumulation, spending and balance and reports quartelry and annually to the Government
on accumulation, investment and spending of the capital of the Fund.
The Government will report quarterly and annually on Fund's accumulation,
spending and investment of the capital of the Fund to the both chambers of the
Russian Parliament (State Duma
and Council of Federation
).
established by resolution of the Government of Russia
Government of Russia
The Government of the Russian Federation exercises executive power in the Russian Federation. The members of the government are the prime minister , the deputy prime ministers, and the federal ministers...
on January 1, 2004, as a part of the federal budget to balance the
federal budget at the time of when oil price falls below a cut-off price, currently set at
US$27 per barrel. In February 2008 the Stabilization Fund was split into a Reserve Fund, which is invested abroad in low-yield securities and used when oil and gas incomes fall, and the National Welfare Fund, which invests in riskier, higher return vehicles, as well as federal budget expenditures. The Reserve Fund was given $125 billion and the National Welfare Fund was given $32 billion.
Furthermore the Fund is to serve as an important tool for absorbing excessive
liquidity, reducing inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
ary pressure and insulating the economy of Russia
Economy of Russia
The economy of Russia is the eleventh largest economy in the world by nominal value and the sixth largest by purchasing power parity . Russia has an abundance of natural gas, oil, coal, and precious metals...
from volatility
of raw material export earnings, which was among the reasons of the 1998 Russian financial crisis. To prevent high inflation rates the fund is invested abroad only.
Aggregate amount of the Stabilization fund of the Russian Federation
| Date | in Billion US dollars | in Billion ruble Russian ruble The ruble or rouble is the currency of the Russian Federation and the two partially recognized republics of Abkhazia and South Ossetia. Formerly, the ruble was also the currency of the Russian Empire and the Soviet Union prior to their breakups. Belarus and Transnistria also use currencies with... s |
|---|---|---|
| 01.30.2008 | 157 | 3,852 |
| 01.01.2008 | 156.81 | 3,849.11 |
| 01.12.2007 | 144.43 | 3,517.05 |
| 01.11.2007 | 147.60 | 3,649.25 |
| 01.10.2007 | 141.05 | 3,519.09 |
| 01.09.2007 | 132.91 | 3,409.07 |
| 01.08.2007 | 127.48 | 3,263.56 |
| 01.07.2007 | 121.68 | 3,141.35 |
| 01.06.2007 | 116.85 | 3,026.68 |
| 01.05.2007 | 113.70 | 2,920.50 |
| 01.04.2007 | 108.11 | 2,812.21 |
| 01.03.2007 | 103.55 | 2,708.85 |
| 01.02.2007 | 99.77 | 2,647.21 |
| 01.01.2007 | 89.13 | 2,346.92 |
| 01.12.2006 | 83.21 | 2,189.52 |
| 01.11.2006 | 76.62 | 2,049.30 |
| 01.10.2006 | 70.73 | 1,894.09 |
| 01.09.2006 | 64.73 | 1,730.64 |
| 01.08.2006 | 82.14 | 2,207.33 |
Recent developments
According to amendments to Russia’s budget code inspired by President Vladimir PutinVladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
’s budget address of March 2007 and passed in April 2007, in February 2008 the Stabilization Fund will be split into a Reserve Fund, which will be invested abroad in low-yield securities and used when oil and gas incomes fall, and a Future Generations’ Fund (later renamed the National Welfare Fund), which will invest in riskier, higher return vehicles, as well as federal budget expenditures. Unlike the Stabilization Fund, the new funds will also accumulate revenues from oil products and natural gas.
On May 21, 2007, President Vladimir Putin
Vladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
urged the government to pump surplus oil revenue into domestic stocks by buying Russian blue chips such as Gazprom
Gazprom
Open Joint Stock Company Gazprom is the largest extractor of natural gas in the world and the largest Russian company. Its headquarters are in Cheryomushki District, South-Western Administrative Okrug, Moscow...
and Rosneft
Rosneft
Rosneft is an integrated oil company majority owned by the Government of Russia. Rosneft is headquartered in Moscow’s Balchug district near the Kremlin, across the Moskva river...
, which have fallen since the beginning of the year, instead of foreign securities, which previously had been explicitly forbidden out of the fear of inflation.
Accumulation and expenditure
The Fund accumulates revenues from the export duty for oil and the tax onthe oil mining operations when the price for Urals oil exceeds the set cut-off price.
The capital of the Fund may be used to cover the federal budget deficit and
for other purposes, if its balance exceeds 500 billion ruble
Russian ruble
The ruble or rouble is the currency of the Russian Federation and the two partially recognized republics of Abkhazia and South Ossetia. Formerly, the ruble was also the currency of the Russian Empire and the Soviet Union prior to their breakups. Belarus and Transnistria also use currencies with...
s, Spending amounts are
subject to the federal budget law for the corresponding fiscal year.
As the capital of the Fund had exceeded the level of 500 billion rubles in
2005, part of its surplus was used for early foreign debt repayments as well as to
cover Russian Pension Fund's deficit. The details of these transactions in 2005 are
as follows:
| Transactions in 2005 | billion USD |
|---|---|
| Early debt repayment to the International Monetary Fund International Monetary Fund The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world... | 3.33 |
| First debt repayment installment to the countries-members of the Paris Club Paris Club The Paris Club is an informal group of financial officials from 19 of some of the world's biggest economies, which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors... | 15 |
| Paid to Vneshekonombank (VEB) for loans provided to the Ministry of Finance in 1998-1999 for servicing the state foreign debt of Russian Federation | 4.3 |
| Transferred to the Russian Pension Fund. | 1.04 |
Governance Structure
The Fund is managed by the Ministry of Finance of the Russian FederationMinistry of Finance of the Russian Federation
Ministry of Finance of the Russian Federation is a federal ministry, responsible for general financial policy and for general management in the field of finance of the Russian Federation. The ministry has two predecessors, the most notable one being the Ministry of Finance of the USSR, the other...
("the Ministry of Finance") pursuant to procedure defined by the Government of the
Russian Federation ("the Government"). Some functions of asset management may
be delegated to the Central Bank of the Russian Federation
Central Bank of the Russian Federation
The Bank of Russia or the Central Bank of The Russian Federation is the central bank of The Russian Federation. Its functions are described in the Russian constitution and in the special Federal law...
("the Bank of Russia")
in accordance with its agreement with the Government.
In accordance with the Fund's objectives its capital is to be invested in foreign
sovereign debt securities. Securities' eligibility criteria are subject to the
Government's approval.
The Ministry of Finance is empowered by the Government to establish the
Fund's currency composition and its strategic asset allocation in line with the
investment policy for the Fund's management.
The Ministry of Finance may use one or both of the following schemes
defined by the Government to invest the Fund's capital.
| Schemes defined by the Government to invest the Fund's capital |
|---|
| Investment in eligible foreign fixed income securities directly |
| Allocation to the Federal Treasury's accounts with the Bank of Russia in foreign currency with the total return of these accounts based on indices composed of eligible foreign debt securities and defined by the Ministry of Finance. |
The Fund assets are currently invested solely under second scheme
(allocation to the Federal Treasury's accounts with the Bank of Russia).
Investment Guidelines
The Government determined that eligible debt securities for the Fundinvestment are to correspond to the following requirements.
| Fixed income securities of Austria Austria Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the... , Belgium Belgium Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many... , Finland Finland Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside... , France France The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France... , Germany Germany Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate... , Greece Greece Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe.... , Ireland Ireland Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth... , Italy Italy Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and... , Luxembourg Luxembourg Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south... , Netherlands Netherlands The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders... , Portugal Portugal Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the... , Spain Spain Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula... , the United Kingdom United Kingdom The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages... , and the USA, denominated in US dollars, euro Euro The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,... , GB pounds (sovereign debt securities) |
| Issuer shall have a long-term credit rating Credit rating A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are... at AAA/Aaa level (highest investment grade) from at least two of the following three rating agencies: Moody's Investors Service, Standard and Poor's, Fitch Ratings Fitch Ratings The Fitch Group is a majority-owned subsidiary of FIMALAC, headquartered in Paris. Fitch Ratings, Fitch Solutions and Algorithmics, are part of the Fitch Group.... |
| Minimum amount outstanding of a candidate security: 1 billion US dollars, 1 billion euro, 500 million GB pound respectively |
| Securities shall be bullet |
| Securities shall have no call or put options |
| Fixed coupon type if a coupon bond |
| Not for private placement |
Debt secuirities on the date of purchase will have a minimum remaining
maturity of 0,25 years and not to exceed 3 years.
The Fund assets are currently invested in the following currency composition:
| US dollars | 45% |
| Euro | 45% |
| GB pounds | 10% |
Currency composition and the maturity restrictions are applicable to all
Fund's assets and are subject to revisions by the Ministry of Finance.
Reporting
The Ministry of Finance publishes a monthly report in mass media on theFund's accumulation, spending and balance and reports quartelry and annually to the Government
on accumulation, investment and spending of the capital of the Fund.
The Government will report quarterly and annually on Fund's accumulation,
spending and investment of the capital of the Fund to the both chambers of the
Russian Parliament (State Duma
State Duma
The State Duma , common abbreviation: Госду́ма ) in the Russian Federation is the lower house of the Federal Assembly of Russia , the upper house being the Federation Council of Russia. The Duma headquarters is located in central Moscow, a few steps from Manege Square. Its members are referred to...
and Council of Federation
Federation Council of Russia
Federation Council of Russia ) is the upper house of the Federal Assembly of Russia , according to the 1993 Constitution of the Russian Federation...
).
External links
- Official website
- SWF Institute Russia's SWF