Telegraph | Russia is running out of money. President Vladimir Putin is taking a
strategic gamble, depleting the Kremlin's last reserve funds to cover
the budget and to pay for an escalating war in Syria at the same time.
The three big rating agencies have all issued
alerts over recent days, warning that the country's public finances are
deteriorating fast and furiously. There is no prospect of an oil
revival as long as Saudi Arabia continues to flood the market. Russia
cannot borrow abroad at a viable cost.
Standard & Poor's says the budget deficit will balloon to 4.4pc of
GDP this year, including short-falls in local government spending and
social security. The government has committed a further $40bn to bailing
out the banking system.
Deficits on
this scale are manageable for rich economies with deep capital markets.
It is another story for Russia in the midst of a commodity slump and a
geopolitical showdown with the West. Oil and gas revenues cover half the
budget.
"They can't afford to run deficits at all. By the end
of next year there won’t be any money left in the oil reserve fund,"
said Lubomir Mitov from Unicredit. The finance ministry admits that the
funds will be exhausted within sixteen months on current policies.
Alexei Kudrin, the former finance minister, said the Kremlin has no
means of raising large loans to ride out the oil bust. The pool of
internal savings is pitifully small.
Any attempt to raise funds
from the banking system would aggravate the credit crunch. He described
the latest efforts to squeeze more money out of Russia's energy
companies as the "end of the road".
Mr Kudrin resigned in 2011
in protest over Russia's military build-up, fearing that it would test
public finances to breaking point. Events are unfolding much as he
suggested.
Russia is pressing ahead with massive rearmament,
pushing defence spending towards 5pc of GDP and risking the sort of
military overstretch that bankrupted the Soviet Union.
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