Any economic entity engaged in business activities, seeks to create a reserve of financial resources, the purpose of which is to insure the state of the entity at a time when there will not be enough operational funds in order to fulfill obligations. The state, as one of the largest economic entities with diverse obligations, also forms a stock of financial resources. So, the reserve fund of Russia, created for this purpose less than ten years ago, is functioning in the current time.
Reasons for creating a stabilization fund
The processes taking place in the economy and society are inextricably linked with risks, both external and internal. Quite often, risks are imported from the global economy, and in this case, their scale may be greater than it was originally predicted. Due to the impossibility of making absolutely accurate calculations for many interconnected processes, there is a need to create reserve funds, which, if necessary, will be directed to preventive measures or to eliminate adverse social and economic consequences.
Due to the fact that when planning the budget they usually do not take into account force majeure circumstances, which in most cases are poorly predicted, the availability of reserve resources outside the existing budget is required, which will be used to work to restore the situation in society.
The history of the creation of the reserve fund in Russia
It was because of the frequent emergence in the new history of Russia of the threat of an economic crisis, the existence of a budget deficit and, consequently, the manifestation of critical situations in society, in 2004 it was decided to form a stabilization fund. In this form, it existed until 2008, and was divided into two areas: the Reserve Fund of Russia and the National Welfare Fund.
The main objective of the first is to ensure the fulfillment of government obligations in all areas that were budgeted in case the predicted income items are lower in actual terms.
The National Welfare Fund (NWF) has a specific designation in the direction of spending - support for the pension system in terms of fulfilling all of its stated obligations and functions.
As a result of the accumulation of additional financial resources, the formation of the “piggy bank” took place, which made it possible not to resort so often to internal and external loans, which are not always economically feasible.
Sources of income
The Russian Reserve Fund is formed at the expense of just a few income items:
- revenues from the sale of natural resources (oil and gas) that exceed the established targets;
- income received through fund asset management.
Moreover, there is a statement of the size of the fund for each financial and planning period. The normative indicator is based on 10% of the GDP projected for the coming year. After the Reserve Fund is filled with revenues, subsequent income in this direction will be sent to the NWF.
Expense items
Quite often, the question arises as to what the money of the reserve fund of Russia is spent on in conditions of an average stability situation in the economy.Since the revenue side of both the budget and the indicated fund largely depends on the price of oil, the prerequisites for understanding which areas the reserved funds will go are connected with this.
With a decrease in oil prices, budget revenues immediately decrease, and actual profitability indicators deviate from real ones. The latter is directly reflected in the budget items of expenditures. So that the state can comply with its stated obligations to finance the most important tasks in the presence of a budget deficit, an appeal is made to the funds of the reserve fund.
Current state
Over a not very long new economic history of Russia, including starting from the period when the reserve fund of Russia was already formed, the country experienced several economic crises that significantly affected the welfare of the population and the business sector. Each way out of the crisis, and to accurately predict the depth of the economy’s decline in advance, is rather difficult, was accompanied by the creation of certain government support tools that required significant budgetary costs. For the most part, funds from the fund were used to maintain economic activity. Therefore, how much the reserve fund of Russia is after almost 9 years after its inception can be found in the reports of the Ministry of Finance, which are regularly published with this information.
The state of the reserve fund will also largely depend on the effectiveness of budget planning, since it is important that cost items be economically rational. This does not apply to the social sphere, which is always subsidized and the most sensitive to changes in financing.
To reduce the burden on the reserve fund, it is necessary to create effective budget revenue items that are not directly tied to the use of natural resources. This is primarily the development of competitive industries and innovative technologies, which will lead locomotive employment growth and increased tax revenues to the budget. Therefore, how much money is in the reserve fund of Russia depends not only on how the fund’s income was formed, but also on how much the country's budget has an effective income and expense.
Bank Reservation Funds
Resource reservation practices are common in many financial institutions. These institutions primarily include the Central Bank of Russia. The reserve funds of the Bank of Russia are intended to fulfill its obligations in case of loss.
The Central Bank also acts as the custodian of the reserve funds of commercial banks, acting as a guarantor of maintaining a liquid banking system. At the same time, a certain percentage of the authorized capital is established as a bank reserve. The purpose of these reserves is the same as in other cases - the fulfillment of all obligations undertaken by a commercial institution, as well as work with bank bonds in the absence of other financial resources.
Conclusion
The presence of a financial reserve in any country is a strategic task requiring a very careful approach to its formation and spending. Which reserve fund of Russia will be formed in the coming years will largely depend on the possibilities of replenishing it, as well as targeted spending in cost-effective and socially significant areas. Although this fund acts as a safety mechanism for the country's budget, it is not obligatory for spending in case of any deficit in the budget. The reserved funds are the guarantee of the future opportunities of society and the state to achieve important socio-economic goals.