National Welfare Fund: features of formation, management, directions for using funds. International Central Bank Reserves, National Welfare Fund and Reserve Fund The purpose of creating a national welfare fund is
Oil and gas revenues of the federal budget are formed due to:
Tax on the extraction of mineral resources in the form of hydrocarbon raw materials (oil, combustible natural gas, gas condensate);
Export customs duties on crude oil;
Export customs duties on natural gas;
Export customs duties on goods produced from oil.
A certain part of the specified oil and gas revenues in the form of oil and gas transfer annually allocated to finance federal budget expenditures. The amount of oil and gas transfer is approved by the federal law on the federal budget for the next financial year and planning period in an absolute amount, calculated as 3.7% of the volume of gross domestic product projected for the corresponding year, specified in the federal law on the federal budget for the next financial year and planning period.
After the formation of the oil and gas transfer in full, oil and gas revenues go to Reserve fund.
The standard value of the Reserve Fund is approved by the federal law on the federal budget for the next financial year and planning period in an absolute amount determined on the basis of 10% of the volume of gross domestic product projected for the corresponding year. After filling the Reserve Fund to the specified amount, oil and gas revenues are sent to National Welfare Fund.
From January 1, 2010 to January 1, 2015, the standard value of the Reserve Fund is not determined; oil and gas revenues of the federal budget are not used to financially support oil and gas transfers and for the formation of the Reserve Fund and the National Welfare Fund, but are directed to financially support federal budget expenditures.
Another source of formation of the National Welfare Fund is income from the management of its funds.
From January 1, 2010 to February 1, 2015, income from the management of funds of the National Welfare Fund is not credited to the Fund, but is directed to financial support for federal budget expenditures.
Funds from oil and gas revenues of the federal budget, the Reserve Fund and the National Welfare Fund are accounted for in separate accounts for the accounting of federal budget funds opened by the Federal Treasury in the Central Bank of the Russian Federation.
From January 1, 2010 to January 1, 2015, separate accounting of oil and gas revenues from the federal budget is not carried out.
Calculations and transfers of funds in connection with the formation and use of oil and gas revenues of the federal budget, oil and gas transfers, funds of the Reserve Fund and the National Welfare Fund are carried out by the Ministry of Finance of the Russian Federation in the manner established by the Government of the Russian Federation.
From January 1, 2010 to January 1, 2015, the procedure for making settlements and transfers of funds in connection with the formation and use of oil and gas revenues of the federal budget, oil and gas transfers, funds of the Reserve Fund and the National Welfare Fund was suspended.
The National Welfare Fund is part of the federal budget. The fund is intended to become part of a sustainable mechanism for pension provision for citizens of the Russian Federation for the long term. The goals of the National Welfare Fund are to ensure co-financing of voluntary pension savings of citizens of the Russian Federation and to ensure balance (covering the deficit) of the budget of the Pension Fund of the Russian Federation.
Management Goals
The goals of managing the funds of the National Welfare Fund are to ensure the safety of the Fund’s assets and a stable level of income from its placement in the long term. Management of the Fund's assets for these purposes allows for the possibility of obtaining negative financial results in the short term.
Managment structure
The funds of the National Welfare Fund are managed by the Ministry of Finance of the Russian Federation in the manner established by the Government of the Russian Federation. Certain powers to manage the funds of the National Welfare Fund may be exercised by the Central Bank of the Russian Federation. In the case of attracting specialized financial organizations to exercise certain powers to manage the funds of the National Welfare Fund, the procedure for attracting these organizations, as well as the requirements for them, are established by the Government of the Russian Federation.
The funds of the National Welfare Fund can be managed in the following ways (both individually and simultaneously):
1) by purchasing foreign currency at the expense of the Fund and placing it on accounts for recording funds of the National Welfare Fund in foreign currency (US dollars, euros, pounds sterling) in the Central Bank of the Russian Federation. For the use of funds in these accounts, the Central Bank of the Russian Federation pays interest established by the bank account agreement;
2) by placing the Fund’s funds in foreign currency and financial assets denominated in Russian rubles and permitted foreign currency (hereinafter referred to as permitted financial assets).
The Ministry of Finance of the Russian Federation manages the funds of the National Welfare Fund in accordance with the first method, that is, by placing funds in foreign currency accounts with the Central Bank of the Russian Federation as follows. According to the procedure for calculating and crediting interest accrued to accounts for accounting for funds of the National Welfare Fund in foreign currency, approved by the Ministry of Finance of the Russian Federation, the Bank of Russia pays interest on the balances on these accounts equivalent to the yield of indices formed from financial assets in which the Fund’s funds can be placed national welfare, the requirements for which are approved by the Government of the Russian Federation.
The Government of the Russian Federation establishes maximum shares of permitted financial assets in the total volume of allocated funds of the National Welfare Fund. In order to improve the efficiency of managing the funds of the National Welfare Fund, the Ministry of Finance of the Russian Federation is authorized to approve the regulatory shares of permitted financial assets in the total volume of allocated funds of the National Welfare Fund within the limits of the corresponding shares established by the Government of the Russian Federation.
Table 2 - Regulatory shares of permitted financial assets
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Permitted financial assets as defined by the Budget Code of the Russian Federation |
Limit shares established by the Government of the Russian Federation |
Regulatory shares approved by the Ministry of Finance of Russia |
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in foreign currency |
in rubles |
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debt obligations of foreign countries |
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debt obligations of foreign government agencies and central banks |
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debt obligations of international financial organizations, including those issued by securities |
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deposits and balances on bank accounts in banks and credit institutions |
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deposits in the state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)" |
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deposits and balances on bank accounts with the Central Bank of the Russian Federation |
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debt obligations of legal entities |
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shares of legal entities and shares (participatory interests) of investment funds |
The Government of the Russian Federation has established the following requirements for these financial assets:
1. funds of the National Welfare Fund may be placed in debt obligations in the form of securities of foreign states, foreign government agencies and central banks of the following countries:
Great Britain;
Germany;
Luxembourg;
Netherlands;
Finland;
2. debt obligations must meet the following requirements:
foreign issuers of debt obligations must have a long-term credit rating of no lower than “AA-” according to the classification of rating agencies Fitch-Ratings or Standard & Poor’s, or no lower than “Aa3” according to classification of the rating agency Moody's Investors Service. If a foreign issuer of debt obligations is assigned different long-term creditworthiness ratings by the specified agencies, then the lowest of the assigned ones is accepted as the long-term creditworthiness rating;
Russian issuers of debt obligations must have a long-term credit rating of no lower than "BBB-" according to the classification of rating agencies Fitch Ratings or Standard & Poor's, or no lower than "BaaZ" according to classification of the rating agency Moody's Investors Service. If the Russian issuer of debt obligations is assigned different long-term creditworthiness ratings by the above agencies, then the lowest of the assigned ones is accepted as the long-term creditworthiness rating;
the maturity dates of debt issues are fixed, the terms of issue and circulation do not provide for the issuer’s right to repurchase (repay) them ahead of schedule;
the terms of issue and circulation of debt obligations of foreign issuers do not provide for the right of the owner of debt obligations to present them early for redemption (redemption) by the issuer;
the standards for the minimum and maximum periods before repayment of debt issues established by the Ministry of Finance of the Russian Federation are mandatory;
the rate of coupon income paid on coupon debt obligations, as well as the denominations of debt obligations are fixed;
the nominal value of debt obligations is fixed and is expressed in Russian rubles, US dollars, euros or pounds sterling, payments on debt obligations are made in the currency of the nominal value;
the volume of issue of debt obligations in circulation is at least 1 billion rubles for debt obligations denominated in Russian rubles, 1 billion US dollars for debt obligations denominated in US dollars, at least 1 billion euros for debt obligations, denominated in euros, and at least 0.5 billion pounds sterling - for debt securities denominated in pounds sterling;
Debt issues are not issues intended for private (non-public) placement.
3. international financial organizations in whose debt obligations the funds of the National Welfare Fund can be placed include debt obligations (including those issued by securities) of the following institutions:
Asian Development Bank (ABD);
Development Bank of the Council of Europe (Council of Europe Development Bank, CEB);
European Bank for Reconstruction and Development (EBRD);
European Investment Bank (EIB);
Inter-American Development Bank (IADB);
International Finance Corporation (IFC);
International Bank for Reconstruction and Development (IBRD);
Nordic Investment Bank (NIB).
4. Shares of legal entities and shares (participatory interests) of investment funds in which funds of the National Welfare Fund can be placed must meet the following requirements:
shares of legal entities must be included in the quotation list of at least one stock exchange;
shares of foreign issuers must be included in the lists of securities used to calculate the MSCI World Index and FTSE All-World Index stock indices;
shares of Russian issuers must be included in the lists of securities used to calculate the RTS Index or MICEX Index stock indices;
The assets of investment funds that have issued units (participation interests) must include only permitted financial assets.
5. When placing funds of the National Welfare Fund on deposits and bank accounts in banks and credit institutions, the following requirements must be met:
a bank or credit institution must have a long-term credit rating of no lower than “AA-” according to the classification of rating agencies Fitch-Ratings or Standard & Poor’s, or no lower than “Aa3” according to classification of the rating agency Moody's Investors Service. If a bank or credit organization is assigned different long-term creditworthiness ratings by the specified agencies, then the lowest of the assigned ones is accepted as the long-term creditworthiness rating;
the standards for the minimum and maximum periods for placing funds of the National Wealth Fund on deposits in banks and credit institutions, established by the Ministry of Finance of the Russian Federation, are mandatory;
6. When placing funds of the National Welfare Fund on deposits in the state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)", the following requirements must be met:
a) funds can be placed on deposits in Russian rubles, US dollars, euros and pounds sterling;
b) the maximum permissible total amount within which funds can be placed on deposits in Russian rubles is 955 billion rubles, in which case:
up to 175 billion rubles can be placed on deposits, the amounts, terms and other essential conditions for which are determined by the Ministry of Finance of the Russian Federation;
up to 410 billion rubles can be placed on deposits in the manner established by the Government of the Russian Federation, on the following conditions:
up to 40 billion rubles can be placed on deposits at a rate of 6.25 percent per annum for a period until June 1, 2020 in the manner established by the Government of the Russian Federation;
up to 30 billion rubles can be placed on deposits at a rate of 6.25 percent per annum for a period until December 31, 2017 in the manner established by the Government of the Russian Federation;
up to 300 billion rubles can be placed no later than December 31, 2012 on deposits at a rate of 6.25 percent per annum for a period until December 30, 2022 inclusive.
Payment of interest on the placement of funds during the entire period is carried out quarterly.
the possibility of early return of funds is allowed with the consent of the state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)", while interest on the placement of funds is paid for the actual period of the funds being on deposit.
c) the amounts and terms of placement of funds are determined by the Ministry of Finance of the Russian Federation, taking into account the specified requirements; placement of funds on deposits is carried out by the Federal Treasury by decision of the Ministry of Finance of the Russian Federation.
Information on the placement of funds of the National Welfare Fund on deposits in the state corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)" is published in the "Statistics" subsection.
7. The Ministry of Finance of the Russian Federation has the right to establish additional requirements for permitted financial assets within the limits of the requirements established by the Government of the Russian Federation. In accordance with the powers granted by the Government of the Russian Federation, the Ministry of Finance of the Russian Federation approved:
1. maximum shares in the total funds of the Fund: in Russian rubles - 40%; in foreign currency - 100%.
2. the regulatory currency structure of the funds of the National Welfare Fund in foreign currency in the following composition:
3. current deadlines until the repayment of issues of debt obligations of foreign states, debt obligations allowed for the placement of funds of the National Welfare Fund:
for debt instruments denominated in US dollars and euros (except for debt obligations of the Spanish government):
For debt denominated in pounds sterling (other than Spanish Government debt):
For Spanish government debt:
The terms indicated above are valid at the time of acquisition of debt obligations at the expense of the National Wealth Fund or at the time of formation of indices from debt obligations used to calculate the amounts of interest accrued on the balances of funds in the accounts for accounting the funds of the National Welfare Fund in permitted foreign currencies, opened by the Federal Treasury at the Central Bank of the Russian Federation.
4. list of foreign government agencies in whose debt obligations the funds of the National Welfare Fund can be placed (in agreement with the Central Bank of the Russian Federation):
Austrian Export-Import Bank (Oesterreichische Kontrollbank Aktiengesellschaft, OKB);
Public Credit Agency, Spain (Instituto de Credito Oficial, ICO);
Motorway and Motorway Financing Agency, Austria (Autobahnen - und Schnellstrassen - Finanzierungs - Aktiengesellschaft, ASFINAG);
Group of Banks for Reconstruction and Development, Germany (Kreditanstalt fur Wiederaufbau Bankengruppe);
Export Development Canada (EDC);
Communal Bank of the Netherlands (Bank Nederlandse Gemeenten, BNG);
Society for Medium Term Finance of the Railway Network, UK (Network Rail MTN Finance CLG (Plc));
Agricultural Rentenbank, Germany (Landwirtschaftliche Rentenbank);
Federal Home Loan Mortgage Corporation, Freddie Mac;
Federal National Mortgage Association, USA (Federal National Mortgage Association, Fannie Mae);
Federal Home Loan Banks, USA (FHLBanks);
Federal Farm Credit Banks, USA (FFCB);
Municipal Credit Fund, France (Dexia Group);
Social Security Debt Service Fund, France (Caisse d'Amortissement de la Dette Sociale, CADES);
French Mortgage Fund (Credit Foncier de France, CFF).
5. maximum nominal volume of acquired debt obligations of one issue:
for debt obligations of foreign states - 25% of the nominal volume of the issue;
for debt obligations of foreign government agencies, central banks and international financial organizations - 5% of the nominal volume of the issue.
The expenditure side of budgets at all levels of the budget system of the Russian Federation provides for the creation of reserve funds: executive authorities; local government bodies. Budget reserve funds are a separate part of funds in budgets of all levels, in the form of target budget funds designed to ensure uninterrupted financing of both previously foreseen expenses and unforeseen expenses that arose suddenly and are of an emergency or accidental nature. Funds from reserve funds are spent on financing unforeseen expenses, including for carrying out emergency restoration work to eliminate the consequences of natural disasters and other emergencies that occurred in the current financial year. The reserve fund performs two functions. Firstly, its funds can be used to cover the state budget deficit at a time of unfavorable market conditions. Secondly, during a period of high prices for raw materials, the fund allows you to accumulate excess export earnings and prevent the development of the Dutch economic disease. The procedure for their expenditure is established by regulatory legal acts of the Government of the Russian Federation, executive authorities of constituent entities of the Russian Federation or local governments.
The formation of the Fund occurs as follows. Oil and gas revenues of the federal budget are generated through: - tax on the extraction of minerals in the form of hydrocarbons (oil, combustible natural gas, gas condensate); - export customs duties on crude oil; - export customs duties on natural gas; - export customs duties on goods produced from oil.
A certain part of these oil and gas revenues in the form of oil and gas transfers is annually used to finance federal budget expenses. The amount of oil and gas transfer is approved by the federal law on the federal budget for the next financial year and planning period in an absolute amount, calculated as 3.7% of the volume of gross domestic product projected for the corresponding year, specified in the federal law on the federal budget for the next financial year and planning period. After filling the Reserve Fund to the specified amount, oil and gas revenues are sent to the National Welfare Fund.
From January 1, 2010 to January 1, 2014, the standard value of the Reserve Fund is not determined; oil and gas revenues of the federal budget are not used to financially support oil and gas transfers and for the formation of the Reserve Fund and the National Welfare Fund, but are directed to financially support federal budget expenditures. Another source of formation of the National Welfare Fund is income from the management of its funds.
From January 1, 2010 to February 1, 2014, income from the management of funds of the National Welfare Fund is not credited to the Fund, but is directed to financial support for federal budget expenditures. Funds from oil and gas revenues of the federal budget, the Reserve Fund and the National Welfare Fund are accounted for in separate accounts for the accounting of federal budget funds opened by the Federal Treasury in the Central Bank of the Russian Federation.
From January 1, 2010 to January 1, 2014, separate accounting of oil and gas revenues from the federal budget is not carried out. Calculations and transfers of funds in connection with the formation and use of oil and gas revenues of the federal budget, oil and gas transfers, funds of the Reserve Fund and the National Welfare Fund are carried out by the Ministry of Finance of the Russian Federation in the manner established by the Government of the Russian Federation.
From January 1, 2010 to January 1, 2014, the procedure for making settlements and transfers of funds in connection with the formation and use of oil and gas revenues of the federal budget, oil and gas transfers, funds of the Reserve Fund and the National Welfare Fund was suspended. Accounting for transactions with oil and gas revenues of the federal budget, funds from the Reserve Fund and the National Welfare Fund is carried out in the manner established for accounting for transactions with funds from the federal budget. The Fund's funds are used as follows.
Funds from the National Welfare Fund can be used to co-finance voluntary pension savings of Russian citizens and ensure balance (covering the deficit) of the budget of the Pension Fund of the Russian Federation. The amount of funds from the National Welfare Fund allocated for these purposes is established by the federal law on the federal budget for the next year and planning period. The procedure for co-financing voluntary pension savings of citizens of the Russian Federation is defined in the Federal Law of April 30, 2008 No. 56-FZ “On additional insurance contributions for the funded part of the labor pension and state support for the formation of pension savings.” The Government of the Russian Federation has the right, until January 1, 2014, without amending the federal law on the federal budget, to direct funds from the Fund to make payments that reduce debt obligations, reduce borrowing and ensure the balance of the federal budget, including in excess of the total volume of federal budget expenditures in the event and within the limits of increasing budgetary allocations of the federal budget for the provision of interbudgetary transfers in order to ensure the balance of the budgets of state extra-budgetary funds of the Russian Federation. Thus, we found out that the national welfare fund is formed from oil and gas revenues and income from fund management, and we studied the procedure for their enrollment. We also found out that funds from the National Welfare Fund can be used to co-finance voluntary pension savings of Russian citizens and ensure balance (covering the deficit) of the budget of the Pension Fund of the Russian Federation. The goals of managing the funds of the National Welfare Fund are to ensure the safety of the Fund’s assets and a stable level of income from its placement in the long term. Management of the Fund's assets for these purposes allows for the possibility of obtaining negative financial results in the short term. The funds of the National Welfare Fund are managed by the Ministry of Finance of the Russian Federation in the manner established by the Government of the Russian Federation. Certain powers to manage the funds of the National Welfare Fund may be exercised by the Central Bank of the Russian Federation. In the case of attracting specialized financial organizations to exercise certain powers to manage the funds of the National Welfare Fund, the procedure for attracting these organizations, as well as the requirements for them, are established by the Government of the Russian Federation. Management of the funds of the National Welfare Fund can be carried out in the following ways (both individually and simultaneously): 1) by purchasing foreign currency at the expense of the Fund and placing it on accounts for accounting the funds of the National Welfare Fund in foreign currency (US dollars, euros, pounds sterling) in the Central Bank of the Russian Federation. For the use of funds in these accounts, the Central Bank of the Russian Federation pays interest established by the bank account agreement; 2) by placing the Fund’s funds in foreign currency and financial assets denominated in Russian rubles and permitted foreign currency (hereinafter referred to as permitted financial assets).
The National Welfare Fund of the Russian Federation was founded on February 1, 2008 after the dissolution of the stabilization fund The National Welfare Fund of the Russian Federation was founded on February 1, 2008 after the dissolution of the stabilization fund. In addition to the creation of a national welfare fund, a reserve fund was also established.
The political practice of establishing a national welfare fund has been successfully operating for several decades in a number of foreign countries. National Welfare Funds are most often created in territories that provide a stable supply of oil abroad.
Purpose
The purpose of the national welfare fund is to participate in the process of providing citizens of the Russian Federation with pension payments. Thus, the national welfare fund is a certain share of the federal budget’s cash savings, aimed at supporting the financing of the funded part of citizens’ pensions and supporting payments by the Pension Fund in case of a shortage of funds.
Compound
The National Welfare Fund is replenished from two types of revenues:
1) Oil and gas cash receipts to the federal budget, provided that the reserve fund meets the volume standard.
2) Profit from management activities with the savings of the national welfare fund.
Oil and gas cash receipts, in turn, consist of:
Collection of taxes on the extraction of raw materials.
Customs duties on the export of extracted oil.
Customs duties on the export of gas extracted from the bowels of the earth.
Customs duties on the export of petroleum products.
Management activities for the accumulation of the national welfare fund are carried out by the Ministry of Finance of the Russian Federation. The procedure for managing the national wealth fund is strictly regulated by law. Some functions for managing savings are performed by the Central Bank of the Russian Federation.
The volume of financial savings making up the national welfare fund as of May 1, 2016 was estimated at 4,751,69 billion rubles.
Asset placement
A certain share of the financial savings of the national welfare fund is included in the international reserve of the Russian Federation. This share was transferred to the monetary units of other states and is listed in the bank accounts of the Central Bank of the Russian Federation. The Government of the Russian Federation, in turn, has the right to invest a share of the national welfare fund in the financial assets of other states.
This situation creates some danger for the national welfare fund, due to the impossibility of quickly withdrawing savings when an urgent need arises.
As of the summer of 2016, the accounts of the Central Bank of the Russian Federation, taking into account the share of the national welfare fund, contained approximately 19.56 billion US dollars, 20.76 billion euros, 3.83 billion British pounds. All listed financial assets are taken into account when calculating the gold and foreign exchange reserves of the Russian Federation.
Thus, the gold and foreign exchange reserve of the Russian Federation is reliable, but does not bring significant income compared to the national welfare fund, which can bring more income if properly managed, but at the same time is more risky when investing.
Editor: Igor Reshetov