Russia, which has been in economic recession since mid-2014, is expected to cut its budget by 10% following a prolonged dip in oil prices. This amounts to $9.1bn, and the Russian government is currently formulating plans about where to implement the cuts.
These measures, an attempt to keep its economy afloat, highlight Russia’s dependence on commodities – roughly 52% of government revenue comes from oil. The country now faces a deeper recession following the drop in price of Brent crude to $30 a barrel, and some experts have said that the Kremlin would need prices to rise to $82 a barrel in order to balance the budget.
The current budget was based on oil prices at $50 a barrel. Russian financial analyst Oleg Kouzmin at Renaissance Capital told the BBC that Russia can handle a budget deficit of 3% of GDP without difficulty; any more will pose significant challenges for the country. And now with Iran poised to enter the global petroleum market, forecasts are not optimistic for Russia’s finances.
If oil stays at $30 a barrel, Russia will see continued recession, weakened currency, and higher inflation, added Mr Kouzmin. Last year saw the highest inflation in Russia in seven years, which has in particular led to a spike in food prices – fish, fruit and vegetables have gone up by nearly 30%.