Russia Depletes Half of Its “Rainy Day” Fund Amid War with Ukraine

by Roman Cheplyk
Tuesday, January 23, 2024
Russia Depletes Half of Its “Rainy Day” Fund Amid War with Ukraine

In the span of two years during the war against Ukraine, Russia has utilized almost half of the liquid assets of its “rainy day” fund, the National Welfare Fund (NWF)

The NWF's balance has dwindled from 9 trillion rubles prior to the war to currently around 5 trillion rubles.

  • Stabilization Fund: Initially known as the Stabilization Fund and now the NWF, this fund was established to mitigate the impact of fluctuating commodity prices on Russia's economy. The invasion of Ukraine and ensuing sanctions led to significant price volatility and an unpredictable ruble exchange rate.
  • Financial Maneuvers: Throughout the first half of 2023, Russian oil traded at a discount, and a relatively strong ruble meant that the required volumes weren't achieved, leading to the sale of currency from the NWF by the Russian Ministry of Finance.
  • Fund Depletion: Before deciding to replenish the NWF in 2023, the Russian Ministry of Finance significantly drained its resources, as budget expenditures exceeded expectations by 3 trillion rubles. In December 2023 alone, the ministry sold considerable foreign currency and gold reserves, and withdrew 2.9 trillion rubles to cover the deficit.
  • Budget Allocation for Defense: The Russian government has significantly increased its defense budget for 2024, allocating 10.775 trillion rubles to national defense, marking a substantial increase from previous years and reflecting the highest allocation to military and defense industries since the USSR era.
  • Social Unrest in Russia: The escalating costs of the war in Ukraine, coupled with domestic inflation and rising prices, are fueling social discontent within Russia.

This financial strain highlights the substantial economic impact of the ongoing conflict with Ukraine on Russia's national reserves.

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