Faced with a rapidly deteriorating fiscal position, Russia's government has announced that it will privatize major state-owned firms. This is a promising step, but without institutional reforms and a re-engagement with the West, its impact on revenues and economic efficiency will be severely diminished.
PARIS – Squeezed by low oil prices and Western sanctions, Russia’s fiscal position is crumbling fast, forcing the government to take increasingly drastic measures to contain the budget deficit’s growth. Government spending has already been cut 8% in real terms this year, relative to 2015 – large, but not nearly enough to balance the budget. Indeed, if the oil price remains in the current range of $30-35 per barrel (this year’s budget assumes an average of $50), Russia’s deficit will be around 6% of GDP. With a rainy day “reserve fund” of only 4.5% of GDP and scant access to international financial markets, Russia urgently needs a fiscal Plan B.
PARIS – Squeezed by low oil prices and Western sanctions, Russia’s fiscal position is crumbling fast, forcing the government to take increasingly drastic measures to contain the budget deficit’s growth. Government spending has already been cut 8% in real terms this year, relative to 2015 – large, but not nearly enough to balance the budget. Indeed, if the oil price remains in the current range of $30-35 per barrel (this year’s budget assumes an average of $50), Russia’s deficit will be around 6% of GDP. With a rainy day “reserve fund” of only 4.5% of GDP and scant access to international financial markets, Russia urgently needs a fiscal Plan B.