10% Budget Cuts for Russia

Budget cut concept

If you’ve been following the news lately, then you are likely aware that there has recently been a major drop in the price of oil, which is something that affects many countries around the globe. For Russia, that means that it has considerably less money coming in and that it has to do something about that problem…and fast. Its answer, thus far, has been to make huge budget cuts- by a whopping 10%!

All ministries and government departments are, as a result, hard at work making their budget cuts, which must total $9.1 billion. That’s definitely no small feat! However, it’s certainly not a brand new challenge for Russia.

Last year, Russia was again forced to redo its budget, and it was for the same reason- falling oil costs- then as it is now. However, these most recent cuts weren’t decided on until December of last year when the Prime Minister realized a problem was brewing and sought to take immediate action to try and correct it.

While the Prime Minister was definitely smart to act quickly, even he couldn’t control or predict the fact that oil prices would end up dropping even more. In fact, since Russia’s last attempt at restructuring its budget, oil prices have fallen 20% more, leading to even tighter “purse strings” for the country.

The answer for Russia should be clear. Instead of focusing on budget cuts, it should focus its attention on lessening its dependence on oil. Unfortunately, though, that hasn’t proved possible for the country, largely because its dependence on this resource is so great. More than half of its budget revenues are currently owed to crude oil.

Thus, Russia has already been living on a reduced budget, one which it recently found wasn’t quite reduced enough and that it would have to cut even further. New budget cuts that will be proposed would deal with state investment programs and administrative costs.

If those proposed cuts don’t do the trick for Russia, it is going to have to look to another means of tightening up financially. And it needs to do so quickly because financial experts are expecting that crude oil prices are going to fall even lower in the coming year.

While things are definitely unstable for Russia at the moment, it is working hard to regain control and stability. Most speculate that what the country most needs to do is to find other outlets for bringing in revenue, and, until that happens, to do just what it’s doing now- cutting its budget significantly until it finds that other revenue source. However, budgets can only be cut so far, and many in Russia are starting to grow concerned over the country’s financial problems and its overall staying power. Only time will tell how things play out for the country, but as of right now, it definitely doesn’t look good for Russia, which may need some help from allies to get out of this tough spot.

 

Strategy & Equity