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Council / Russia tension contributes to £35m drop in value of council reserves

THE VALUE of Shetland Islands Council’s investments dropped by £35 million in just one month as worries over rising inflation and tension between Russia and Ukraine affected financial markets.

A report presented to members of the council’s policy and resources committee highlighted that the value of investments at the end of January stood at £414 million.

This is a drop from £449 million at the end of December.

By the end of February the value had dipped even further to £411 million.

Finance manager Jamie Manson said equity markets struggled in January and February in part due to concern over rising inflation and the Omicron variant of Covid.

The increasing tension between Russia and Ukraine, which culminated in an invasion at the end of February, was also a factor.

While Manson expects the value of investments to fall further due to the invasion, longer term there could be a “rebound”, like how the markets recovered from the onset of the Covid pandemic.

It comes after Manson confirmed the council was sitting on investments worth £1.4 million in “Russian entities”. Some of this is found in the pension fund, which the local authority administers.

He said fund managers are beginning to voluntarily reduce their Russian investments, but the markets in Moscow are suspended – as are Russian shares listed elsewhere.

The picture is somewhat complex because the council invests in a product containing a number of shares, and officers cannot divest from a one particular share without having to leave the scheme.

Despite the relatively high value of council reserves, which are dipped into to cover shortfalls in funding, there are repeated warnings that they can quickly increase or decrease depending on economic and investment circumstances.

Meanwhile Manson said he expects the council to report an underspend at the end of the financial year.

A number of departments are experiencing staff vacancies, which contributing to reduced expenditure.

The overall projected draw on reserves at quarter three of 2021/22 is £21.8 million, which is £3 million less than budgeted.

Leader Steven Coutts said the figures “demonstrate our good financial management”.