Russia dips into gold to cover multi-year high $25bn budget deficit

By Onome Amuge 

Russia has sold 3.6 tonnes of gold and 2.3 billion Chinese yuan from its National Wealth Fund (NWF) in January 2023, as the world’s largest country by size, moved to cover its largest budget deficit for January in 25 years, exacerbated by tumbling  income from oil and gas revenues amid its lingering war in Ukraine and resultant Western sanctions.

Russia’s finance ministry, in a recent report, disclosed that the sale of both assets added up to 38.5 billion roubles, approximately $543 million. It further noted that the purpose of the sale, which is a first move of its kind, was to help cover the deficit which rose to 1.76 trillion rubles ($25 billion).

A 46 per cent drop in tax revenue from oil and gas from a year ago and a 59 per cent increase in expenditure driven higher by the war in Ukraine, were both attributed as major contributions for the budget deficit.  A ban on most seaborne imports of crude and refined fuels by the European Union and the G-7 price cap,also weighed on Russia’s oil and gas revenue.

Meanwhile, the fund’s assets held in euro, pounds, and Japanese yen were frozen after sanctions were introduced on the transcontinental country following its invasion of Ukraine in February, 2022. Prior to that, the NWF had abandoned all of its U.S dollar assets in favour of its gold,euro, and Chinese yuan holdings.

According to Russia’s Ministry of Finance, the country’s NWF stood at $155.3 billion as of February 1, which is equivalent to 7.2 per cent of its GDP and up from $148.4 billion reported in December. The ministry also disclosed that it doubled its holding limits of gold and Chinese yuan within the NWF at the beginning of the year to ensure flexibility.

The new maximum holding limits, it noted, were set at 40 per cent for gold and 60 per cent for yuan, against the previous limits of 20 per cent and 30 per cent, respectively.