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. Last Updated: 07/27/2016

Gaidar Says Oil Fund Should Be Boosted to Protect Pensions

ST. PETERSBURG -- Russia must capitalize on the boom in oil prices to massively expand state saving and shore up its pensions system, former Prime Minister Yegor Gaidar said Saturday.

Russia has channeled windfall oil revenues into a budget stabilization fund worth $117 billion, or around 10 percent of gross domestic product, to insure its public finances against a possible slump in oil prices.

But, Gaidar said in a speech, the fund -- now being widened to include growth-oriented investments -- should grow to as much as 70 percent of GDP if Russia is to safeguard living standards for the elderly.

"While oil prices are abnormally high, we have a chance to resolve this most difficult strategic task," Gaidar told a handpicked audience of business and political leaders at the St. Petersburg International Economic Forum.

The country's population, now just over 140 million, is falling by 700,000 per year, and a shrinking working-age population will threaten its state-run pension system by 2020 if remedial action is not taken. Private pension provision is small by comparison.

Gaidar estimated the cost of fixing Russia's pension system at around 4 percent of GDP, making a big expansion to the stabilization fund vital to cover that cost and avert the painful alternative of tax increases.

He noted that government pension fund of Norway, another oil exporter, was worth 100 percent of that country's GDP.

"We need 70 percent of GDP to ensure the stability of our pension system," said Gaidar, author of Russia's 'shock therapy' reforms of the early 1990s and now head of the Institute for the Economy in Transition, a think tank.

Reacting, Finance Minister Alexei Kudrin said Gaidar's forecast represented one scenario under review by officials working on an investment strategy for the fund that should be completed by the end of June.