Our Opinion: 2015

A tough year for Russia

Russia’s annual budget has passed through Parliament and it is clear that the Government is finally facing up to its mounting fiscal problems.

Liza Ermolenko at Capital Economics reported that “a substantial fiscal squeeze is looming” with “public investment set to bear the brunt” of these costs. Infrastructure spending could be by around 40% in real terms. Whilst the defence budget will, unsurprisingly, continue to grow, prestige projects like the Space Programme, will suffer. What is more, these cuts will not be the last to take place. While the Government will use its external reserves to finance borrowing and repay debt, these have already fallen sharply so ‘fiscal policy will need to tighten further over the coming years.”

The outlook won’t have been helped by the Rouble’s resurgence. Whilst the surge has allowed the central bank to reduce interest rates, the stronger currency is reducing the government’s potential revenue from dollar-denominated oil exports.

A tough year remains likely.