Russia is running out of money

Money is flowing out of Russia at an alarming rate, with the country's emergency fund holding just $32.2 billion after nearly two years of recession, the Russian Finance Ministry said.

In September 2014, just before oil prices began to plummet, the fund was worth $91.7 billion. And things are getting worse. Analysts predict that the fund will have just $15 billion left by the end of the year and will be depleted completely after that.

“At the current rate, the fund will be depleted by mid-2017, or just a few months from now,” said Ondrej Schneider, chief economist at the Institute of International Finance (IIF).

The government reserve fund is designed to cover shortfalls in the national budget at times when oil and gas revenues are low. Russia’s 2016 budget was designed based on an oil price of $50 a barrel. However, the average oil price in the first eight months of the year was less than $43.

Russian President Vladimir Putin at a meeting in Moscow. Photo: Reuters

As a result, oil now accounts for just 37% of Russian government revenues, down from 50% two years ago. The decline means that the government will have to continually tap its emergency fund. The government has indicated that once that fund runs out, it could turn to its welfare fund, which currently has more than $70 billion, to pay pensions and invest in large-scale projects.

The Russian central bank cut its key interest rate to 10 percent from 10.5 percent yesterday to stimulate the economy. It still has $395 billion in international reserves, down from $524 billion in October 2013. It spent more than $140 billion of its foreign exchange reserves in 2014 and 2015 to prop up the ruble.

The strategy, however, proved to be ineffective, and Russia eventually abandoned it. In January, the ruble hit a record low of 82 rubles to the dollar. It has since recovered somewhat, to 65 rubles to the dollar.

The oil price plunge comes at a time when Russia’s economy is struggling because of Western sanctions over the Ukraine crisis. Key Russian companies are barred from accessing European capital and many food imports, while officials have had their assets frozen abroad.

Russia also retaliated by banning Western food imports. This not only caused headaches for European farmers, but also pushed Russia into a period of double-digit inflation.

According to VNE