DAVOS: Russia will begin digging into its reserves in coming months in order to limit cuts on its public spending to 15 percent, its deputy prime minister told the Davos annual meeting on Wednesday, as plunging oil prices and Western sanctions bite into the country’s budget.

“For this first quarter of 2015, banking stability is the key. That’s why we put funds into the banking system,” said Arkady Dvorkovich.

“But during the year, we will use some part of the reserves for fiscal stability,” the deputy prime minister said, adding that that would enable the budget to be trimmed by 10 to 15 percent but “not halved. “Russia, which is heavily dependent on energy exports, has seen its revenues plunge as crude prices slump by more than half since June.

Dvorkovich said what Russia urgently needs is for the volatility in the oil market to end, “otherwise people don’t know what to expect in the currency market”.

“If oil prices fall to — let’s say — $40, then exchange rates will develop a bit then stop (fluctuating). Then we can reduce interest rate domestically and do business.

“At the current (interest) rate of 17 percent, it’s impossible to do any business in the economy. People are just waiting for (things to) stabilise.

“The best scenario for Russia is stable prices, for prices (to be) stable between $60-$80 rather than $110 now and $40 the next day,” he said.

Published in Dawn, January 22nd, 2015

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