Russia’s National Wealth Fund is shrinking. The fund, used to support the economy amid sanctions and military expenditure, held nearly 10 trillion roubles at the start of the war. By the end of May, the balance had fallen to 2.843 trillion roubles, or about €30 billion. The fund may run out by the end of the year.
Russia’s finance ministry expects a budget deficit of 3.8 trillion roubles for 2025, exceeding what remains in the fund. The fund had cushioned the domestic economy against the financial impact of the war and sanctions.
Heli Simola, senior economist at the Bank of Finland, said the shortfall indicates the fund will not suffice. “Then Russia must find other means,” she told Yle.
Russia faces three main options: domestic borrowing, tax increases and spending cuts, or central bank financing.
The state can raise funds by borrowing from domestic banks, which still hold capital. Simola said this is currently feasible. Government debt stands at about 20 percent of GDP. However, foreign borrowing remains limited due to sanctions. Before the war, foreign investors accounted for 20–30 percent of state bond purchases. This figure has dropped to a few percent.
“Sanctions have clearly had an effect,” Simola said.
The second option involves fiscal tightening. Russia may increase taxes or cut spending once the reserve fund is exhausted and domestic borrowing reaches its limit. The government has already introduced temporary export and profit taxes on businesses. From the start of 2024, a five-percentage-point increase in corporate profit tax was made permanent.
Simola said the aim is to compel companies to share war costs.
The final option is central bank financing. This involves issuing more roubles to cover state spending. It risks accelerating inflation, which is already about ten percent per year. Prices of essential goods such as cabbage and potatoes have increased. Wages have risen, but the balance remains fragile.
“If this method is used widely, inflationary pressure will rise and the economy may enter crisis,” Simola said.
Russia’s economic distress is growing slowly. The country has been conditioned to endure, but reserves are being consumed.
Though Russia’s budget deficit is about two percent of GDP, lower than Finland’s projected 3.8 percent, sanctions prevent normal operations. Russia must rely entirely on internal resources.
The National Wealth Fund contains non-liquid assets, including shares in Sberbank and bonds tied to infrastructure projects. These are not readily saleable.
“It’s hard to see them selling Sberbank shares. The bank is to remain under state control,” Simola said.
Discussion on the economy is still permitted in Russia, unlike debate on the war. Criticism of economic policy is growing.
Elvira Nabiullina, head of the Central Bank of Russia, warned at the St. Petersburg Economic Forum that buffers like the reserve fund are nearly depleted.
“We must understand that many of these resources have been used up,” she said, according to TASS.
At the same event, Maksim Reshetnikov, Minister of Economic Development, said the economy is on the brink of recession.
The central bank maintains some independence. Top officials and business leaders have criticised high interest rates, which are stalling investment and growth. In June, the bank lowered the key rate from 21 percent to 20 percent.
For now, the central bank manages inflation and recession risks. Pressure will increase as options narrow.
HT
