Russian Finance Minister calls for creation of Oil and Gas Fund
7 Dec, 2006 07:00
Russian Finance Minister wants to create a separate Oil and Gas Fund to make the economy less dependent on energy revenues. If Aleksey Kudrin gets his way Russia’s petrodollars will be removed from the country's budget.
Russia has a Stabilisation Fund to protect the economy from excessive inflation and rapid rouble appreciation. The fund has been a key anchor of Russia's economic stability since it was created in 2003. Mr Kudrin does not doubt the importance of the Stabilisation Fund but considers it to be insecure since the fund only stock-piles extra revenues from oil-related taxes above $US27 a barrel.“I can say that if we had spent all our petrodollars last year, inflation would have reached 20%. That is why Russia – like some other countries – needs a Stabilisation Fund,” Mr Kudrin pointed out. The Finance Minister wants all oil and gas-related revenues to be separated from the country's budget and put into a new oil and gas fund. Although analysts say Russia's budget would end up in deficit without the huge monthly inflow of petrodollars, Mr Kudrin thinks some of the cash from the new fund could be put into the budget if needed. Still transfers from the new fund should never exceed 3.6 % of GDP, which will keep the government's overall expenditure under control, at around 17%. “If we do not create the new fund, we'll be spending 6% of GDP from oil and gas revenues this year. Next year, it'll be 5%, and then it'll fall to 4% over the next few years. We shouldn't keep on changing it. It should be set at – and stay at – 3.6%. We can't raise salaries and then lower them. We can't start building roads, and then stop half-way,” Mr Kudirn said. The Finance Minister sees this proposal as a long-term plan – keeping expenditure from the oil and gas fund at a steady 3.6 % of GDP for the next 40 years. Some analysts in Moscow are supportive of Mr Kudrin's proposal saying it will lead to a more stable budget policy for Russia. However, others are critical, saying Russia needs to start investing its petrodollars in building up the weaker sectors of the economy.