The collapse in oil prices may seen Russia’s foreign reserves completely exhausted within the next 18 months, says a new report from the New York Times.
The newspaper reports that with tax revenues plunging, oil and gas prices still plummeting and sanctions still applied to Russia, the country’s economic woes won’t get any better anytime soon. This is why officials are looking to slash spending 10 percent across the board and rely on its reserves until oil prices get better.
This may not be a strategy that will work.
Here is what the newspaper writes:
“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. 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.”
For years, Russia has relied on its energy exports for half of its federal budget. For officials, this made sense considering that it is the second-largest crude oil producer after Saudi Arabia. But it serves that you shouldn’t have a bloated government that depends on a resource.
Why? Well, citizens become addicted to social assistance, social spending and social improvements. Once the well dries up and those social endeavors can no longer be afforded, they will protest, revolt and demand more.
Just look at Greece.
Just like another nation we know, U.S.