According to the Institute of International Finance, Russia may run out of financial reserves
by mid-2017.
The country has spent the past two years battling economic shortfalls, so is Russia running
out of money?
Well, since mid-2014, Russia has seen an ongoing recession, with wages adjusted for inflation
dropping nearly 10%, and inflation itself as high as 15%.
The country’s currency, the ruble, has fallen dramatically in relation to the dollar, doubling
from about 34 Rubles per dollar to nearly 80 Rubles per dollar in just six months.
Many blame these economic troubles on collapsing oil prices, and international economic sanctions.
In 2014, Russia invaded Ukraine and annexed the territory of Crimea.
In response, the United States, European Union, and a number of countries imposed economic
sanctions on Russian trade, businesses, and individuals.
Some foreign assets were seized, debt financing was reduced, and a number of goods were prohibited
from trade.
Most importantly, many of these sanctions targeted the country’s state-owned oil exports.
In fact, oil is the leading cause for Russia’s current economic crisis.
Around the same time period as the annexation of Crimea, oil prices worldwide collapsed.
Saudi Arabia flooded the tightly-controlled market, outpacing demand, and cutting costs
significantly.
Although it is believed that this was done to halt US investment in alternative sources
of oil, it also affected nearly every country dependent on oil for revenue.
The cost per barrel dropped from roughly $99 dollars in June of 2014, to less than $42
dollars on average in 2016.
In response, Russia lowered its oil export dependence from 50% of the revenue in 2014
to just 37% in 2016.
Budget officials also based the 2016 budget on oil prices being $50 a barrel, but as the
year has progressed, the real price has averaged to be considerably lower than expected.
One of the biggest consequences of this recession is the country’s rapidly depleted reserve
fund.
This fund is used to shore up the yearly budget, which is based on what the government projects
it will receive in taxes and exports.
But for the past two years, those predictions have fallen short.
As of September 2016, this fund held roughly $32 billion dollars, which is less than a
quarter of what it was at its peak in 2008.
But all of this doesn’t mean that Russia will run out of money entirely since the country
boasts a GDP of roughly $1.3 trillion dollars.
But it would likely mean that the remaining shortage would come from Russia’s ‘welfare
fund’.
The roughly 70-billion-dollar fund is intended to serve as capital for future pensions, as
well as any major investments, such as infrastructure.
Russia could use the fund to solve budget issues in the short-term, but be left without
any prospects for improvement in the future.
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Many of these decisions have come down to Russia’s president: Vladimir Putin.
Although many believe he helped make Russia an economic world power years after the fall
of the Soviet Union, today those policies aren’t quite as effective at keeping the
country afloat.
So, is Putin leading Russia into a Great Depression?
Find out in this video.
Russia even destroyed tons of cheese, fruit, bacon and other foods instead of allowing
them to go to the country's many impoverished residents.
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