So, if at the beginning of the year, a barrel of crude oil was $107 and the U.S. dollar was trading at 33.2 rubles, the budget received 3,552 rubles, with a price of $59.07 per barrel of Brent crude oil and the U.S. dollar trading at above 60 rubles (on the Moscow exchange), the budget receives more than 3,750 rubles. Thus, a weak ruble with decreasing oil prices is to the advantage of the Russian government, which will be able to fill the budget with necessary funds and to keep its social commitments.
On the other hand, a weak ruble causes greater inflation. The planned inflation rate for 2014 was about 6 percent. If that by the end of this year inflation would be about 9 percent, and by the beginning of 2015, about 10 percent. This means that the purchasing power of an average citizen dropped by about 9 percent.
In order to keep people feeling comfortable, the Russian government should adjust people’s salaries and pensions according to the index, which means to increase them by 9 percent. This will be a burden for the state budget.
If the Russian government decides to increase salaries and pensions accordingly, it can take money from the Reserve Fund, an account that currently stands at $88.94 billion (or 6.1 percent of Russia’s GDP as of Dec.1, 2014). By the estimates of economists, including Sergei Guriev, those funds will dry out in three years if the current situation will not worsen.
After that, the Russian government will have to decrease budget expenses by cutting pensions, social commitments, the military budget or some other expenses.