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World Bank Suggests Russia to Invest Abroad

The fund could eventually act as a safety net for the government's efforts to shift the economy away from dependence

The World Bank has urged Russia to invest billions of dollars the country received from its oil exports into foreign companies? shares, Mosnews reported yesterday.

The bank?s chief economist for Russia, John Litwack, quoted by AP said Russia?s Stabilization Fund would clock in at a healthy $2.3 trillion dollars come 2030, if it was invested properly and left untouched. The fund receives nearly every dollar of oil companies? profits over $27 per barrel. It currently stands at more than $55 billion.

Litwack suggested that the fund could eventually act as a safety net for the government?s efforts to shift the economy away from its vulnerable dependence on oil and gas exports as well as insuring the country against any sudden drop in prices.

?One of points we stress is that if they can take the money and invest it in a well managed portfolio of foreign assets ... and prices stay high ? they?ll be able to accumulate such a large resource that just the income would be a huge cushion against oil price shocks,? Litwack said.

The bank?s latest report on the Russian economy featured an economic model for the stabilization fund that assumed oil prices would fall gradually to $40 by 2030 and that the government also wouldn?t touch the cash pile for about 24 years. In that case the fund could be worth $2.3 trillion, with the return alone equivalent to 17 percent of gross domestic product, or about $800 billion, he said.

Litwack said that would give the Russian government the confidence to undertake bold steps to diversify the economy, including tax cuts in the non-oil sector, which would initially have the effect of making the country more reliant on the oil price and the taxes oil companies pay.