By John Q. Hosedrinker 
Russia’s National Welfare Fund (NWF), initially holding $140 billion in liquid assets, has been significantly depleted to $53.8 billion due to the ongoing war and budget deficits. To cover these shortfalls, projected to reach $61 billion over the next three years, Russia has resorted to selling gold reserves and faces further financial strain from recent US sanctions impacting trade with China. These sanctions have complicated transactions, forcing reliance on intermediaries for payments. The dwindling NWF reserves highlight the increasing economic pressure on Russia.
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Russia’s foreign currency reserves are plummeting to their lowest levels since 2008, a stark indicator of the country’s increasingly dire economic situation. This decline, fueled by persistent budget deficits and the ongoing war in Ukraine, paints a worrying picture for Russia’s future financial stability. The National Welfare Fund (NWF), once a substantial reserve of approximately $140 billion in liquid assets, has dwindled to a mere fraction of its former size.
As of December 1st, the NWF held only $53.8 billion in liquid assets, according to official figures. This represents a significant depletion of nearly two-thirds of its initial value within the last three years. The ongoing war has placed an enormous strain on the Russian economy, forcing the government to consistently draw upon these reserves to cover escalating budget deficits. Since January alone, free assets within the NWF, originally intended for pension financing, have shrunk by a further $2.1 billion, highlighting the desperation of the situation.
To further bolster its dwindling reserves, Russia has resorted to selling off its gold reserves. Between June and early December, a significant 50 tons of gold were liquidated, leaving only 279 tons remaining. This drastic measure underscores the severity of the financial challenges facing the country. The ongoing depletion of both currency and gold reserves points toward a critical juncture for Russia’s financial stability.
Russia’s budgetary woes are set to deepen in the coming years, with projected deficits totaling $61 billion over the next three years, surpassing the remaining liquid reserves in the NWF. The budget projects deficits of $11 billion in 2025, ballooning to $21 billion in 2026, and a staggering $28 billion in 2027. This projected shortfall raises serious questions about the government’s ability to manage its finances and maintain essential services.
Exacerbating these fiscal pressures are recent US sanctions targeting 50 Russian banks. These sanctions have severely disrupted financial transactions with China, a crucial trading partner for Russia. Russian importers now find themselves relying on cumbersome and expensive intermediaries to conduct business with Chinese sellers, as direct payments have become nearly impossible under the intensified scrutiny of US sanctions. This adds another layer of complexity and expense to an already strained economy.
The ruble’s recent devaluation, falling below 100 rubles to the dollar, further reflects the ongoing economic instability. Although the Central Bank attempted to downplay the situation, the devaluation followed the imposition of sanctions on Gazprombank. The subsequent attempts to manipulate the exchange rate through measures such as a decree on gas payment procedures has had mixed results, failing to completely stabilize the ruble.
The implications of these dwindling reserves are far-reaching. A lack of foreign currency severely limits Russia’s capacity to engage in international trade and make essential payments. This scarcity restricts the ability to import crucial goods and services, potentially leading to shortages and inflation within the country. The consequences extend beyond trade, potentially impacting the ability to service existing debts and support critical government functions.
The situation raises questions about the long-term sustainability of the war effort in Ukraine. The economic strain imposed by the conflict, combined with the depletion of reserves and the imposition of sanctions, creates a significant challenge for the Russian government. The longer the war continues, the greater the financial burden will become, potentially leading to increased domestic unrest. The question of how long the Russian population can endure the economic hardships remains unanswered, introducing an element of uncertainty and risk.
The possibility of a prolonged war, combined with the deteriorating economic climate, increases the likelihood of widespread social and political instability. The dwindling reserves also raise concerns about the Russian government’s ability to maintain essential services, potentially leading to widespread discontent and social unrest. The lack of foreign currency reserves raises major questions concerning Russia’s ability to sustain its current trajectory. The inability to smoothly conduct international transactions will further weaken the economy and impact the lives of ordinary citizens.
In short, Russia’s plummeting foreign currency reserves, coupled with mounting budget deficits and intensified sanctions, are creating a perfect storm. This crisis presents a profound challenge to the country’s long-term economic and political stability and ultimately questions the sustainability of the ongoing military conflict. The coming months will be crucial in determining the trajectory of the Russian economy and the implications for both the domestic population and the global geopolitical landscape.