The Russian government on Monday announced guidelines for managing its oil stabilisation fund, which is expected to near Rbs600bn ($20.5bn) by the end of this year.
The government, which has been running fiscal surpluses for the past five years, said the fund could only be invested in top-rated US and European government bonds.
Six years after a devastating financial crisis that was precipitated by a sharp fall in oil prices, Russia has been careful to stash away its windfall from the record high prices for the commodity. This has led to a sharp rise in Russia's creditworthiness in the international capital markets.
Sonal Desai, economist at Dresdner Kleinwort Wasserstein, said: “Russia has run an extremely conservative fiscal policy since the crisis. Russian debt has reached a safe haven status, having been practically a dirty word in 1998.”
“The prospect of Russia defaulting is not considered realistic over the next few years.”
Prices for the Urals blend of Russian crude oil were yesterday at $39.9 a barrel, compared with the $22/bbl envisioned in the government's budget for this year. This year's average so far is $31.1/bbl.
The law on the stabilisation fund states that the government can spend any amount in the fund over and above Rbs500bn, a milestone expected to be reached in the second half of this year. Political pressure to use a part of it on populist measures is set to intensify when it becomes clear that the limit is breached.
However, the government has said it may use some of the cash to repay some of its bilateral debt, which totals about $45bn. This prospect was brought closer by Germany's controversial decision in June to repackage some Russia's Paris Club debt into tradeable securities.
The threat of further such deals has weighed on Russian bond prices, raising expectations that Moscow would attempt to buy back some of the debt.
The Russian government said on Monday the stabilisation fund could be invested in government securities issued by 13 different European Union countries and the US. It said cash could be held in dollars, euros or sterling.
This is a more conservative approach than that adopted by the Norwegian government, which has invested just 60 per cent of its Oil Fund in bonds and the rest in equities. The Norwegian fund also includes investments into emerging market securities, which tend to be much more volatile than highly rated government debt.
At NKr942bn in June, the Norwegian fund is about eight times the size of the Russian equivalent.
While the Russian government is credited for prudent fiscal policy, analysts say it has done little to reduce the economy's dependence on oil. Russia's gross domestic product is growing at a rate of about 7.4 per cent a year, but achieving President Vladimir Putin's target of doubling it in the 10 years to 2010 would require growth above 9 per cent every year until then, said Ms Desai.
“If that can't be reached at these oil prices, what happens when they fall?”