Mending of Investment holes by Means of Sovereign Funds is a Bad Sign

The debates on the issue on how to use funds fr om export commodity super profits arise in each country wh ere such super profits are accumulated.

In countries with rich natural resources like Russia, the role of sovereign funds is not only limited to formation of state savings, restraint of appreciation of the real exchange rate of the national currency and smoothing of consequences of the Dutch disease. In present-day conditions, sovereign funds along with the budget rule (ultimate expenditures of the federal budget do not exceed the volume of the revenues with the base price of more than 1% of GDP; correlation of the total volume of the planned expenditures and the total volume of expenditures without taking into account nominally approved expenditures) play an important institutional role: reduction of the resource rent makes politicians work more efficiently and not postpone reforms by "buying" from the population the existing bad institutions. In its turn, in a situation of well-developed institutes the political leadership may create correct motivation for the bureaucrats.

However, as regards Russia's extent of dependence on resources the size of those funds is explicitly insufficient. For instance, in Norway the pension Fund of Future Generations already amounts to over 100% of GDP and it is legislatively prohibited to use any portion of those funds except for income received from their placement. It is to be noted that Norway is close to Russia as regards the role of the oil and gas sector in the economy. Both in Russia and Norway the share of oil and gas export in the total volume of export amounts to about 70%, while the share of fuel and commodity rent in GDP, to about 15%. If in 2012 the rate of diversification of the Russian export amounted to 1.95, in Norway it was equal to 2.00. It is to be noted that there is a serious difference as regards the size of sovereign funds: if in Norway it is equal to 105%-107% of GDP, in Russia, to only 8.5%.


Generally, it can be stated that in Russia small amounts of funds have been accumulated with such a high level of commodity dependence if that index is compared with that of other countries. For instance, among CIS states Kazakhstan with its National Oil Fund amounting to about 35% of GDP and Azerbaijan with the State Oil Fund amounting to 60% of GDP can be singled out.


The latest proposal to spend the funds of the National Welfare Fund on transport inside the country, housing and public utilities and power engineering is an attempt to bring real GDP growth rates to the level of over 3% a year; according to many experts the above value will yet require efforts to be achieved. Most probably, that small fund will be reduced, but it will have no significant effect on economic development as the main problem consists in the fact that the model of growth of the 2000s (recovery of unutilized capacities, import substitution due to ruble devaluation in 1998 and constant appreciation of oil prices) is now exhausted.


In the present-day conditions, the quality of institutes matters more: it is important to solve problems related to personnel shortages; reduce the presence of the state in competitive sectors of the economy; raise efficiency of state spendings, including by means of reduction of costs which have a counterproductive effect on growth (law enforcement, state administration, national economy and defense); upgrade protection of proprietary rights and raise investment attractiveness (the latest developments hardly contribute to that cause). Unfortunately, such problems cannot be solved through an increase in funding of state investment projects, the more so at the expense of sovereign funds; such a situation makes the risks of a failure to execute the budget in future even higher.


А.Yu. Knobel, PhD (Economics), Head of the International Trade Department