Tags: russia | foreign reserves | oil | currency

Russia to Run Out of Foreign Reserves in 18 Months

Russia to Run Out of Foreign Reserves in 18 Months

By    |   Monday, 25 January 2016 08:40 AM

Russia’s foreign currency reserves reportedly may be exhausted within 18 months as the nation’s economic woes are keeping pace with quickly plunging oil prices. 

With tax revenue taking a big hit from the ongoing plunge in oil and gas prices, the main Russian government strategy is to cut spending 10 percent across the board and to rely on its reserves until oil prices improve.

“Russia has around $360 billion in foreign currency reserves and some $120 billion in two rainy day funds, down from just under $160 billion a year ago,” The New York Times reported.

“At current spending rates, however, the two funds are expected to last only 18 months. It might also sell significant stakes in state-run companies like the oil giant Rosneft or Sberbank, and it will not increase military spending,” the Times reported.

While the global collapse in oil prices is reordering economic relations around the world, the change is particularly daunting for Russia, which relies on energy exports for 50 percent of its federal budget. Russia is the world's second biggest crude oil producer after Saudi Arabia, according to the International Energy Agency, but is not a member of OPEC.

Russia pumped record amounts of oil last year, nearly 11 million barrels per day, but that pace will not save it in the current global glut.

Russian President Vladimir Putin told the nation late last year that the worst of the recession — the economy shrank 3.9 percent and inflation hit 12.9 percent in 2015 — was over and that modest growth would return in 2016, the Times reported. He touts the oil-price collapse as an “opportunity” that will wean Russia off energy imports and diversify the economy.

Then in January oil fell below $30 per barrel, with no bottom in sight, and the ruble hit a record low of nearly 85 to the dollar before recovering slightly, the Times reported.

"The last time oil prices dropped so low and stayed there, in the 1980s, the Soviet Union disintegrated. Steadily rising prices since 2000 have lifted Russia out of poverty and economic chaos, buoying the prosperity of many Russians with it. Putin was lucky enough to be president for much of that period, but he now faces an extended decline, with real incomes shrinking," the Times explained.

But Forbes Contributor Mark Adomanis asks: Does any of this matter?

"The fact that the (Russian) Central Bank still has a sizable (if reduced) pile of money sitting around won’t do very much to help the average Russian citizen, whose living standards have been battered by a nasty combination of high inflation, rising unemployment, and deepening recession," he wrote.

"That, of course, doesn’t make the current problems any less real, but it does make the ongoing crisis very different from Russia’s experience during the last plunge in oil prices in the late 1990s," he wrote. "Expect Russia’s recession to have a significant political impact, but don’t expect to see a messy collapse of the current system," he wrote.

Meanwhile, U.S. financier George Soros said that Russia's international reserves were sufficient enough for the near future under the conditions of unfavorable economic environment. According to Soros, Russia's international reserves would be enough for two years. International reserves consist of foreign currency, special drawing rights, a reserve position in the IMF and monetary gold.

(Newsmax wire services contributed to this report).

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Russia's foreign currency reserves reportedly may be exhausted within 18 months as the nation's economic woes are keeping pace with quickly plunging oil prices.
russia, foreign reserves, oil, currency
Monday, 25 January 2016 08:40 AM
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