DEFINITION of National Welfare Fund (Russia)
The National Welfare Fund in Russia is a sovereign wealth fund that invests abroad to counteract inflation and guarantee the functioning of Russia’s pension system.
Breaking It Down
The National Welfare Fund is managed by the Russian Ministry of Finance, and its primary purpose is to guarantee long-term functioning of the pension system and also to aid in balancing the budget of the Pension Fund for the Russian Federation, which assigns and pays different types of pensions and social benefits to Russian citizens. It also serves to reduce inflationary pressure and protect the economy from potential volatility from oil and gas export earnings. The National Welfare Fund invests in corporate bonds and stocks outside of Russia.
History of the National Welfare Fund
On January 1, 2004, Russia established the Stabilization Fund to balance the Russian government’s federal budget when global oil and gas prices were rising. In 2008, the Stabilization Fund was divided into two funds, the Reserve Fund and the National Welfare Fund. The Reserve Fund invested in conservative foreign investments and was used as a stabilization fund to balance the federal budget. The National Welfare Fund managed pensions and invested in infrastructure, and invested more aggressively than the Reserve Fund.
Combined, the Reserve Fund and National Welfare Fund made up one of the largest sovereign wealth funds in the country. However, the Reserve Fund was emptied by 2017 and officially dissolved January 1, 2018. What remained in that fund was merged with the National Welfare Fund.
The National Welfare Fund Today
The National Welfare Fund now serves as Russia’s only reserve fund, and in addition to its pension system management has taken over budget balancing tasks. Additionally, all excess oil and gas revenues which were previously accumulated in the Reserve Fund are now paid into the National Welfare Fund. The National Welfare Fund also accumulates revenue from its management of investments.