In January, Russia made a unique move by selling some of its gold to address the budget deficit due to a decrease in income from oil and gas revenues. According to the country’s Finance Ministry, the budget deficit reached 1.76 trillion rubles (USD $25 billion), the largest January deficit in 25 years, as a result of a 46% decrease in tax revenue from oil and gas and a 59% increase in spending due to the conflict in Ukraine.
These reductions in oil and gas income were brought on by Western sanctions, including a ban on most seaborne imports of crude and refined fuels by the EU and the G-7, on Russian exports. The Russian Ministry of Finance announced that it sold 3.6 tonnes of gold and 2.3 billion Chinese yuan from the Russian National Wealth Fund (NWF) in January, which equates to 38.5 billion rubles (USD $543 million) to cover the deficit.
As of February 1st, the NWF is valued at $155.3 billion, representing 7.2% of GDP, and up from the December value of $148.4 billion. The NWF holds Russia’s oil revenues and was established to support the pension system. The Finance Ministry announced earlier this year that it doubled its holding limits for gold and Chinese yuan within the NWF to 40% for gold and 60% for yuan from the previous limits of 20% and 30% respectively, in order to ensure flexibility.
The fund’s assets in euro, pounds, and Japanese yen were frozen after sanctions were imposed on Russia following its invasion of Ukraine in February. Around a year and a half ago, the NWF divested all of its U.S. dollar assets and increased its holdings in gold, euro, and Chinese yuan.