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. Last Updated: 07/27/2016

Rainy Day Fund to Be Raided

VedomostiDeputy Finance Minister Shatalov
The Finance Ministry said Monday it will tap the government's swelling stabilization fund for the first time next year to make debt and pension payments totaling $8.3 billion.

About 74.7 billion rubles ($2.6 billion) of the so-called rainy day fund will be used to cover a deficit in the State Pension Fund and 168 billion rubles will be used to service external debts, Deputy Finance Minister Sergei Shatalov told journalists at an investor conference organized by Brunswick UBS.

The fund was created last year to help insure the country against a repeat of the 1998 financial crisis, when oil prices plunged to $12 per barrel and the government was forced to default on $40 billion in debt and devalue the ruble.

Buoyed by higher than expected oil prices, the fund has grown almost twice as fast as the Finance Ministry predicted when the State Duma approved its creation last November.

Shatalov said the fund will likely total 574.4 billion rubles at the start of 2005, up from an original forecast of 264.3 billion rubles.

That has put pressure on Finance Minister Alexei Kudrin to allow ministers to spend part of the $20 billion pot of money for social payments and anti-terrorism measures.

To help protect those gains, Shatalov said the Finance Ministry is looking at raising the threshold above which the fund can be tapped to 600 billion rubles from the current 500 billion rubles.

Even after the spending measure announced Monday, Shatalov said the ministry expects to start 2006 with more than 700 billion rubles in the fund.

Russia plans to pay a total of $17.7 billion of its external debts next year -- $11.5 billion in principal and $6.2 billion in interest, he said.

The stabilization fund is formed from unexpected budget revenues, duties on oil and oil extraction taxes when the price of oil tops $20 per barrel. It is invested in investment-grade foreign bonds.

Shatalov also said the government may consider cutting the value-added tax to 15 percent if a planned cut to 16 percent from 18 percent in 2006 increases the amount of money collected.

Officials are working on a fairer system of property taxes, he added.

First Deputy Central Bank Chairman Alexei Ulyukayev told the same conference that foreign currency and gold reserves will hit a record $100 billion by the end of this year.

That would be 18 percent of expected nominal GDP of $554.3 billion and 88 percent of total external debt of $113.4 billion.

Ulyukayev also said the Central Bank plans to boost the amount of currency reserves it holds in euros, which is currently 25 percent. He said about 75 percent of currency reserves are held in dollars and did not say how much the euro part of the reserves would be increased.

Capital flight will total about $12 billion this year, up from $2.3 billion last year, Ulyukayev said.

Liberal lawmaker Mikhail Zadornov, a former finance minister and a member of the Budget and Taxes Committee, said Monday that capital flight could hit $17 billion this year.