Putin orders review of limits for exploiting sovereign funds after finance ministry says lower oil demand could hit Russia’s budget
Mr Putin’s order comes after the country’s finance ministry said global efforts to reduce emissions and transition away from fossil fuels could hit Russia’s budget from the early 2030s. Oil and gas sales account for a fifth of the country’s GDP, while fuel and energy products make up the majority of Russia’s exports.
“Since Russia’s international financial economic environment is very, very unpredictable and fraught with crisis risks, so is its role” [fund]”Certainly, very big and difficult,” Kremlin spokesman Dmitry Peskov told reporters on Friday.
Limiting spending from the fund could affect Mr Putin’s plans to overhaul the country’s crumbling infrastructure and boost economic growth. Earlier this year, the government said it could invest 400 billion rubles, the equivalent of $5.5 billion, in infrastructure and development projects from the National Wealth Fund.
On Thursday, the finance ministry recommended a more cautious approach to spending the fund’s money after conducting a stress test on its budget outlook.
“The stress test results show that, if the most ambitious scenarios to reduce emissions are implemented, the issue of the sustainability of the federal budget could arise as early as the 2030s,” the ministry said. “In light of this, one should be particularly careful investing of accumulated surplus income in periods of relatively high prices.”
The ministry expects oil markets to slump in the medium to long term, saying international oil prices could fall to $35 a barrel in 2030 and $25 a barrel by 2050 as worldwide demand falls. On Friday, the international benchmark Brent crude was trading at $78.74 per barrel.
“The Ministry of Finance is concerned about oil demand and a possible fall in prices,” said Dmitry Dolgin, a Moscow-based economist at ING Bank. “This further calls for a higher quality of state savings.”
Climate change and its effects on the Russian economy have risen to the top of the Russian government’s agenda in recent years as scientists say the country’s temperatures are rising at a rate higher than the global average and widespread wildfires have killed the country. Some parts have been destroyed. .
This summer, Mr Putin ordered officials to develop a plan to bring carbon emissions below EU levels by mid-century. The European Union aims to reach net-zero emissions by 2050.
Russian companies are also flagging themselves to protest the new rules and respond to growing pressure from investors.
Georgi Kantchev at [email protected]