Prime Minister Medvedev tells Russians to prepare for the “worst scenario” as the country’s economy follows the downward spiral of oil prices. Government spending will be cut by 10 per cent. Wages are in arrears. Yet, experts do not expect any mass protest for now.
Moscow (AsiaNews) – Russian government officials spoke this week at an economic forum in Moscow about Russia’s worsening economic outlook, warning the population to prepare for the “worst scenario” as low oil prices continue to sink the country’s energy-dependent economy.
Speaking at the annual Gaidar Forum in Moscow, Russian Finance Minister Anton Siluanov warned that oil prices might continue to drop and that country might see a repeat of the 1998 financial crisis. He pointed out that Russia needs oil to be US$ 82 whilst at present it hovers around US$ 30.
Similarly, Prime Minister Dmitry Medvedev noted that “if the oil price keeps falling and dropping, we’ll have to adjust our fiscal parameters,” since Russia's existing cash reserves are not limitless, adding “let’s brace ourselves for the worst scenario”.
Although “The middle class has suffered,” the situation is not yet like that of 1998. Still, he warned that the government needed to act to stimulate investment and head off an “economic depression (that) could last for decades.”
Oil and gas represent more than half of Russia’s government revenues. And lower prices have a strong impact on the national economy. A US$ 10 drop in price represents a loss of US$ 25 billion in the federal budget (although the depreciation of the ruble has somewhat buffeted lower oil revenues).
The 2016 federal budget that was approved was based on an oil price of a barrel in 2016, so the government will be forced to make corrections. Siluanov announced 10 per cent spending cuts and asked state-owned companies to adapt their budgets to the new reality.
Things are not that much better on financial markets. Yesterday, the Moscow Stock Exchange dropped by 5 per cent and, at 85, the ruble hit a record low since 2014 vis-à-vis the euro.
Consumer spending is also down, with car sales plunging by 35.7 per cent in 2015.
Last year, the GDP contracted by 3.7 per cent. This year, instead of growing by 0.7 per cent, as the Economic Development Ministry forecast, the economy will contract by another 0.8 per cent, Vedomosti reported.
Prime Minister Medvedev admitted that the middle class is losing ground, but tried to reassure people that appropriate steps will be taken to ensure economic growth and stop the drop in the standard of living.
He reiterated that the government would continue its policies of import substitution to counter agricultural sanctions and would not raise taxes for small and medium-sized businesses.
Despite such efforts, socio-economic tensions are rising, experts say, but so far, they have not led to mass protests.
According to a survey by the St Petersburg Policy rating fund, cited in Vedomosti, the crisis has meant delays in the payment of wages. In some regions, doctors and teachers went on strike.
In recent years, the payment of wages on time had been a major factor of stability; however, problems began in several regions last December.
"As wage arrears grow, so do pessimism and anxiety among ordinary people," this according to analyst Mikhail Vinogradov." What will happen next is difficult to predict."
Protest activity might rise, but most people are still very much apolitical. At the same time, “appeals for loyalty to the president are growing. This will work so long as the government can maintain the illusion that it is all powerful.”