Russia's reserves decrease threefold, but potential to finance war remains - Ukraine's National Bank 

Russia is gradually exhausting its macroeconomic reserves, in particular the Russian National Wealth Fund (NWF), but its potential to further finance the war remains.

Source: National Bank of Ukraine in response to Ekonomicha Pravda's request

Details: The Russian budget, which has usually been in surplus for three years in a row, is now running a deficit. In April, the forecast for this deficit for 2025 was raised to 1.7% of GDP (from 0.5% of GDP), primarily due to lower oil and gas revenues.

"To ensure budget financing in 2022-2023, Russia has significantly exhausted important macroeconomic reserves, which have limited its political space in the coming years," the National Bank of Ukraine said.

In particular, the liquid part of the Russian National Wealth Fund has decreased threefold since 2022 – by 66%. As of 1 April, it stood at RUB 3.3 trillion or US$38.5 billion. It consisted primarily of assets in yuan (58%) and gold (42%).

The Russian government plans to take another RUB 447 billion (US$5.1 billion) from the National Wealth Fund in 2025, or about 14% of its liquid assets, to finance the budget deficit caused by the war and low energy prices.

"The expanding budget deficit was also financed by issuing domestic debt. Russian banks remained the only buyers of federal loan bonds. Assets owned by non-residents have decreased by 69% since January 2022 to 4% of the maturing bond market," the National Bank states.

Meanwhile, the Russian economy is slowing down amid high inflation and high interest rates. Thus, Russia's GDP is expected to grow by 1-2% in 2025 and by 1% in 2026.

"Unfortunately, the potential for war remains. Given this, Ukraine does not stop working to increase sanctions pressure on Russia," the National Bank adds.

Sanctions against the Kremlin's "financial cushion"

Ekonomichna Pravda asked the National Bank what sanctions could further restrict the Russian government's ability to finance its aggression against Ukraine. In particular, to reduce its access to the macroeconomic reserves accumulated over the years through the National Welfare Fund.

The Ukrainian banking regulator noted that the National Wealth Fund is already under pressure from Western sanctions. In particular, the US, EU, Canada and other countries have restricted their assets.

"Currently, the National Wealth Fund is one of the key sources of covering the budget deficit in Russia [financing the costs of the war against Ukraine], and its resources are seriously running out as a result of the complex impact of sanctions," the National Bank stated.

The liquid part of the National Wealth Fund was reduced primarily due to Russia's lack of access to foreign capital markets, the fight against the shadow fleet, and the introduction of a price list for Russian oil.

"Given that there is currently a decline in Russia's oil and gas revenues, and oil and gas revenues are the main source of the National Wealth Fund, we believe that the key steps to suppress it further are proper information about the sanctions imposed and countering their evasion with the participation of third countries," the National Bank said.

Another serious hit to the Kremlin's "financial cushion" is the reduction of the price list for Russian oil from the current US$60 per barrel to US$45 per barrel. A source of Ekonomichna Pravda familiar with the preparation of the 18th EU sanctions package said that there is still a slight chance that this measure will be included in new restrictions against Russia.

"Another leverage of influence may be the application of personal sanctions to companies and institutions that cooperate/receive investments from the National Wealth Fund," the National Bank added.

Background: 

• Earlier, Russian analysts predicted that the liquid part of the National Wealth Fund could be completely exhausted by early 2026. These estimates were made against the backdrop of falling oil and gas prices.
• Following the escalation in the Middle East, global oil prices temporarily rose. However, Ukrainian analysts involved in sanctions policy believe that even this cannot compensate for the drop in oil and gas revenues that Russia experienced earlier this year.

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