Anton Siluanov, Russia’s Finance Minister, painted a somewhat grim picture of the Russian economy this morning when he said there was a real possibility that the country’s Reserve Fund could be exhausted in 2016 if oil prices stay where they are or continue to decline.
Siluanov told members of parliament that if oil prices stayed below $50 a barrel and the dollar exchange rate did not change, the budget may not receive revenues totaling $14.14 billion.
According to Russian news agency, TASS, Siluanov stated that, “Our reserves volume [in 2015] will decrease by approximately [$40.85 billion] - more than half. This means that 2016 is the last year when we are able to spend our reserves that way. After that we will not have such resources.”
The finance minister further warned that, “If the current oil prices and exchange rates remain the same, and the current oil price is at around $44 per barrel . . . and the ruble exchange rate is about 62 rubles to the [U.S.] dollar, we can (see the budget) fall [$13.9 billion] short. We really face such risks.”
Russia’s Reserve Fund gains revenues from both the production and export of oil, natural gas and other oil products. It has been the main source for covering the government’s shortfall in the budget which has been caused by the low oil prices.
Earlier this month, the country’s finance ministry reported that it spent $6 billion from its Reserve Fund to cover the budget deficit in September - which is double the amount spent from the Fund in July and August combined.
Late this summer, the ministry said it wanted to start replenishing the Reserve Fund if oil prices exceeded $70 a barrel. Siluanov then emphasized how important the Fund was for Russia, warning that, “We lose stability without reserves.”
As China’s economy continues to slump and oil production keeps going up, there does not appear to be any immediate hope that oil prices will increase.
Like the economies of many countries, Russia’s economy has suffered since oil prices dropped from a record high of $114 a barrel down to their current levels.
Not helping Russia’s situation is the fact that the country mostly has been isolated in the worldwide economic picture due to the controversial annexation of Crimea in 2014 and the country’s role in Ukraine’s situation.
The sanctions placed on Russia by many western countries are still in effect. The combination of factors resulted in Russia’s economy shrinking 4.3% in the third quarter of 2015.