Putin Warns Of Russia’s ‘Highly Dangerous Deficit’

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A weaker Russian ruble is hurting companies that depend at least partially in imported goods to run their business. Especially companies that aren’t in the oil business.

Russian pres. Vladimir Putin said the country’s non-oil deficit has reached “highly dangerous” levels, forcing the government to reduce spending.

The government made a costly error in its 2016 budget when it once again mispriced oil. The federal budget is based on oil averaging $50 this year, when it would have been wiser to assume the worst in world oil markets. In 2015, Russia was forced to retool its budget after budgeting for oil averages of $80. It then redid the budget based on oil averaging $60. Oil fell to $50 shortly afterwards and has not broken through that level in months, calling into question why the Russian government would base their year’s income on best case scenarios instead of worst case ones that seem to be more prevalent in this strong dollar/weak commodity environment.

Putin told Germany’s Bild newspaper that the country made development mistakes. ”When oil prices are high, it is very difficult to resist using oil revenues for current expenses. Our non-oil deficit has increased to a very dangerous level, in my opinion. We are now forced to lower it,” he said.

Russia’s economy is not heavily indebted to foreign banks. Most of its debt is in rubles.

Putin reiterated his call that Russia has hit bottom. ”We believe that we will gradually move toward stabilization and economic growth,” he said.

The World Bank said last week that Russia’s economy would likely be recessionary in the first half before recovering later this year.

Much of that depends on oil prices. With Iranian oil coming to market and both the

Sauds and Russians willing to pump oil with abandon, the market expects more downside than upside.

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