Drawing down the Reserve Fund
Overview:
The Russian authorities have taken decisive steps to try and counter the huge economic contraction engendered by the global slowdown and the falling price of oil and gas. Despite criticism of plans to run huge fiscal deficits (that entail drawing down heavily on the government’s fiscal reserve) and the expenditure of a huge amount of foreign exchange reserves to manage a step-devaluation of the ruble these policies are likely to prove largely successful. However, depleted financial buffers and the economy’s continuing reliance on the oil and gas sector leave the authorities more dependent than ever on a recovery in hydrocarbon prices for a return to growth. The long-term outlook for commodity prices is positive but it remains to be seen whether this recent shock can stimulate serious diversification of the economy.