ASSESSMENTS

Russia's Fraying Financial Safety Net Hangs by a Thread

Jan 19, 2018 | 09:00 GMT

With its emergency reserve fund used to cover budget shortfalls now drained, the Kremlin has a few other avenues for managing the country's financial woes.

With Russia's rainy-day fund used to cover budget shortfalls exhausted, the Kremlin has fewer options to manage its financial problems.

(IAN WALTON/Getty Images)

Highlights

  • The Kremlin has drained the Reserve Fund, which was used to help address budget deficits, and now is left to rely on its National Wealth Fund, which is intended to provide for Russia's future and guarantee its pension system.
  • Russia, facing increased U.S. sanction pressure and on the brink of a recession, must address the financial crises in its banking and defense sectors and among its regional governments.
  • The recent rise in oil prices relieves some of the pressure on the government, and increased borrowing on the international market and sizable foreign exchange currency reserves will help Russia stave off destabilization as pivotal elections approach.

Russia's sovereign wealth reserves, once bloated by years of abundant petroleum revenue, are today just shadows of their former selves. And on Feb. 1, the country's Reserve Fund, designed to help the government balance its budget, will officially disappear as it is legally recombined with the National Wealth Fund, a separate pot of money that backs up Russia's pensions. But the merger is a move in name only: It will come after the country's Finance Ministry appears already to have drained the Reserve Fund's remaining $17 billion in cash to plug a looming budget hole. With Russia's financial security blanket wearing thin, the question as national elections approach will become whether its people will continue to trust the current administration to manage the country's increasingly shaky finances....

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