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. Last Updated: 07/27/2016

Debt Reserve Fund Tops $8Bln

High world crude prices and the successful sell-off of state stakes in LUKoil and Slavneft in 2002 have left the government with nearly $8 billion of extra cash it can use to pay this year's record debt bill and cushion against external shocks.

Finance Ministry spokesman Yury Zubarev said Wednesday that the government had surpassed its goal of setting aside 197 billion rubles ($6.2 billion) in the financial reserve fund, which was created within the 2002 budget to ensure this year's $17.1 billion external debt obligations are met.

"This amount meets the budget target of 197.4 billion rubles and does not include revenues from privatization," Zubarev was quoted by Interfax as saying.

The government sold its 5.9 percent stake in top oil producer LUKoil in August for $775 million and received $1.86 billion for its 75 percent stake in Slavneft last month, allowing the government to forgo a planned $1 billion eurobond.

According to most estimates, the fund, once the money from the Slavneft sale is received next month, will hold 250 billion rubles, leaving the government with $1.5 billion it did not plan on having.

Some analysts think the windfall should be used to buy back some of the nation's debt, but with parliamentary elections later this year many worry that the money will be misappropriated or channeled into the budget to cover growing expenses.

"The higher-than-expected reserve figure will allow for a more flexible budget policy in 2003," said Alexander Kudrin, fixed income analyst with Troika Dialog.

Kudrin said the surplus will likely be used as insurance against a significant drop in oil prices between now and April. If prices remain stable, however, the government will likely start buying back debt in the second quarter, he said.

Russia managed to lower its sovereign debt in 2002 to 40 percent of its gross domestic product from 49 percent in 2001, while total debt payments dropped to 2.3 percent of GDP from 2.6 percent, according to government figures.

Russia's debt bill this year balloons to $17.3 billion -- $10.8 billion of which is principal -- from $14 billion in 2002.

The 2003 debt hump was originally $19 billion, but the government last year managed to buy back some $1.7 billion, suggesting it may continue the practice this year, although some economists say this is not necessary.

"It is more important for the government to avoid new borrowings in 2003," said Yevsei Gurvich of the Economic Expert Group.

The 2003 budget allows the government to issue eurobonds worth up to $1.25 billion.

"Also, if oil prices stay above $21.5 a barrel, which is the budget average, it would be wise for the government to leave most of the reserve fund untouched," Gurvich said.