Russian Finance Minister Anton Siluanov said that the only foreign currency that Russia will buy next year to replenish its national wealth fund is the Chinese yuan.

“The yuan is the best suited for reserve currency characteristics among all the currencies of friendly countries, and it has sufficient liquidity in our domestic foreign exchange market,” Siluanov said.

Russia may resume purchases of foreign currency starting next January, after approving the new fiscal base for replenishing the country’s welfare fund last November.

The budget rule states that oil and gas revenues worth more than eight trillion rubles ($116 billion) on an annual basis should be spent on purchases of foreign currency.

On the other hand, the Russian Finance Minister said that the budget deficit in his country may exceed the expected 2% in 2023, as the price limit imposed on Russian oil affects Russian export revenues, which poses a new financial obstacle for Moscow, which is spending generously on its military campaign in Ukraine.

Russia said last week that the price limits imposed on its crude oil and refined products might push it to cut oil production by between 5 and 7% early next year, however Siluanov promised to meet spending commitments, whatever the level of reduction, by resorting to borrowing markets and the country’s reserve fund as needed.

“Is it possible to record a larger budget deficit?

This is possible if revenues are lower than expected,” Silyanov told reporters.

Siluanov added that a reduction in the volume of energy exports is possible, given that some countries avoid dealing with Russia, while Moscow seeks to open new markets, which will determine the revenues of Russian exports.

Siluanov continued, saying that the price limit “has such a significant effect that there will be no supplies to the countries that have set it… This means that there will be other countries… Yes, logistical costs will increase… Discounts may change accordingly”.

In the event of shrinking export volumes, Siluanov said Russia would have two sources of additional financing, the National Wealth Fund, which contains the country’s reserves, and loans.

The Russian government borrowed strongly during the current quarter, after several difficult months that followed Moscow’s decision to send tens of thousands of soldiers to Ukraine in what it describes as a special operation.

Russia now expects to use just over 2 trillion rubles ($29.24 billion) from the National Wealth Fund in 2022, with total spending exceeding 30 trillion rubles, more than initially planned for this year.

“Macroeconomic conditions have changed since the start of the special military operation… Inflation has risen and we need large amounts of resources to support families,” Siluanov said.

Spending from the National Wealth Fund could reach 1.5 trillion rubles in December.

The fund’s total liquid assets at the beginning of this month amounted to 7.6 trillion rubles, equivalent to 5.7% of Russia’s GDP.

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