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Russia Refuses to Cut Defense Amidst Budget Crisis

Russia’s Finance Minister issued some sobering words for the country’s economy at a conference in Moscow this week. “We think that with the (average) oil price at $50 per barrel (in 2015)…we will lose some 3 trillion roubles in revenues…. The state cannot have the spending it used to have with economic growth…(and) with the oil price at 100 dollars per barrel,” said Anton Siluanov. “We need to correct state spending.”

Moscow is obviously aware of the problem, but its solution is telling of its strategic ambitions in 2015. “Regardless of having already curbed 2015 spending, we will ask parliament to cut by 10 percent all expenditure apart from defence spending,” Siluanov said. “This will lead to cutting spending by nearly 1 trillion. But in fact we see this is not enough, with revenue lower by 3 trillion and problems with sources of financing.”

Did you catch that? Russia is set to lose 3 trillion roubles because of the low oil price, some $45 billion, but its intended spending cuts will only make up for one third of that loss. That’s because those cuts will only affect roughly 40 percent of the government’s budget. The rest is made up of pension funds, “legal public obligations,” and defense spending that the Kremlin sees as untouchable.

So while Putin stares down the prospect of deep economic recession, he has no plans on cutting funding for, say, shells bound for buses in Donetsk. Priorities, right?

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  • Kevin

    As the ruble devalues the ruble value of its oil exports will rise, somewhat offsetting this budget problem (as most expenses are in rubles) – and further pushing the burden onto consumers as inflation rises.

    Putin is betting that reductions in (private) consumption can make up for declines in export revenue without sparking a revolt – I suspect he is right.

  • Corlyss

    Except for the fact that this likely means Putin will be annexing more parts of the “near abroad” I’d cheer his continued pouring money down that rathole. I’d hope he pours more, and tries to do the promised infrastructure upgrades. That would be one way to put an end to him.

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