Russia has fallen into full-blown depression and faces a mounting fiscal crisis as oil and gas revenues plummet. Output from country’s state-owned gas giant Gazprom has collapsed by 19pc over the past year as demand shrivels in Europe.
The Russian authorities have the crisis under control for now. They have allowed the ruble to fall rather than burning up reserves, providing a cushion for the budget and for oil and gas producers. But this policy is inflationary, and politically toxic.
It is 66 rubles to 1 US dollar
In March 2015, the government was forced to amend the budget in order to adapt to the $50 oil price level, and it is likely that the 2016 budget will also be tailored accordingly.
Russia has been able to weather the challenges facing its economy a bit better than Nextbigfuture thought they would back in March 2015. However, if oil prices stay low it seems to be a matter of time (1 to 4 years) before Russia has a bigger crisis. With China's economy in what appears to be long term slower growth, it seems oil prices could stay at $60 per barrel or less through 2020.
Gazprom’s revenues are likely to drop by almost a third to $106bn this year from $146bn in 2014, seriously eroding Russia’s economic base. Gazprom alone generates a tenth of Russian GDP and a fifth of all budget revenues.
The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia’s tax income comes from oil and gas.
“Russia is going to be in a very difficult fiscal situation by 2017,” said Lubomir Mitov from Unicredit. “By the end of next year there won’t be any money left in the oil reserve fund and there is a humongous deficit in the pension fund. They are running a budget deficit of 3.7pc of GDP but without developed capital markets Russia can't really afford to run a deficit at all.”
The official reserves have dropped from $524bn to $361bn since the Ukraine crisis first erupted in late 2014. Unicredit said the true figure is nearer $340bn once other commitments are stripped out.
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The Russian authorities have the crisis under control for now. They have allowed the ruble to fall rather than burning up reserves, providing a cushion for the budget and for oil and gas producers. But this policy is inflationary, and politically toxic.
It is 66 rubles to 1 US dollar
In March 2015, the government was forced to amend the budget in order to adapt to the $50 oil price level, and it is likely that the 2016 budget will also be tailored accordingly.
Russia has been able to weather the challenges facing its economy a bit better than Nextbigfuture thought they would back in March 2015. However, if oil prices stay low it seems to be a matter of time (1 to 4 years) before Russia has a bigger crisis. With China's economy in what appears to be long term slower growth, it seems oil prices could stay at $60 per barrel or less through 2020.
Gazprom’s revenues are likely to drop by almost a third to $106bn this year from $146bn in 2014, seriously eroding Russia’s economic base. Gazprom alone generates a tenth of Russian GDP and a fifth of all budget revenues.
The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia’s tax income comes from oil and gas.
“Russia is going to be in a very difficult fiscal situation by 2017,” said Lubomir Mitov from Unicredit. “By the end of next year there won’t be any money left in the oil reserve fund and there is a humongous deficit in the pension fund. They are running a budget deficit of 3.7pc of GDP but without developed capital markets Russia can't really afford to run a deficit at all.”
The official reserves have dropped from $524bn to $361bn since the Ukraine crisis first erupted in late 2014. Unicredit said the true figure is nearer $340bn once other commitments are stripped out.
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