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Russia shutters rainy-day fund as it switches to new budget rule

Reuters  |  MOSCOW 

(Reuters) - drained its to plug budget holes by the end of 2017, the ministry said on Wednesday, ahead of switching to a new budget mechanism that would insulate the oil-dependent from swings on global markets.

The ministry tapped its rainy-day fund in 2014 to cover budget shortfalls amid a sharp drop in prices for oil, Russia's key export. As the fund was running dry, the ministry had already embarked on topping its coffers with fresh petro-dollars.

In December, the ministry converted denominated in foreign currency it held in the into roubles, it said. It then channelled more than 1 trillion roubles ($17.54 billion) of those to the budget.

The ministry said it will now terminate the Reserve Fund, which was a part of the country's gold and forex reserves. Russia's reserves stood at $432 billion as of Dec. 22.

The was created by Russia's former Minister in early 2008. The fund, designed to plug budget holes if and gas revenues fall, was topped up if prices exceeded a certain level for some time.

Since 2014, when took a hit from a drop in prices and Western sanctions over its actions in Ukraine, the shrank considerably. The fund fell to $17.05 billion as of Dec. 1, 2017 from level of nearly $90 billion seen in late 2014.

The termination of the poses no substantial risks, said.

"After all, the was used exactly for the purpose it was created to smooth government spending when prices are volatile. Now that prices are going up, we will see larger accumulation of forex purchases," he said.

To replace the in its former guise, the ministry adopted a so-called budget rule, a move praised by the and the Bank.

Under the rule, the ministry will buy dollars and other foreign currency when Russia's crude blend trades above $40 per barrel, the level factored into the budget. The higher the price, the bigger the forex purchases will be.

Minister said in late 2017 the ministry planned to prop up reserves with the equivalent of around 2 trillion roubles this year if prices hover at $54-55 per barrel.

As blend prices last stood above $70 per barrel, the ministry is expected to increase purchases of foreign currency this month, limiting upside for the rouble, a poll of analysts showed.

($1 = 57.0095 roubles)

(Reporting by Andrey Ostroukh and Polina Nikolskaya; Editing by Jack Stubbs/Jeremy Gaunt)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 21:18 IST