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Russia to Slash Budget by 10% as Oil Slump, Recession Bite Deeper

The Russian government is perparing to slash budget spending by 10% to cushion the effects of  disastrously low prices for oil, the country's main source of income, and a sanctions-fuelled recession, news reports say, citing officials who were present at a December meeting of the cabinet.

The reports by Reuters and the Russian business daily Vedomosti reflect the admission by President Vladimir Putin in an interview with German media also published on January 11 that both the oil price and "the [Western] sanctions are severely harming Russia".

According to a government source who spoke to Reuters, ministries must suggest budget items for 10% cuts before January 15. If they fail to do so, the Ministry of Finance will make the mandatory cuts itself.

The reduction of budget spendings will save about RUB700bn ($9.1bn), the source said, adding that the cuts will not affect public regulatory obligations, salaries to state employees or money allowances to servicemen. Spending on upgrading the military is also unlikely be affected, observers say, because of Russia's new policy of international self-assertion as seen in the Syria conflict.

But the cuts signal that the government no longer anticipates that the current crisis will be short-lived and is preparing for the long haul. The questions now are how deep the recession will bite in its second year and what budget items will be trimmed.

On January 12, the price of Brent crude oil fell below $31 for a barrel, tearing at the framework of the 2016 budget based on oil at $50 for a barrel. The budget also assumes a deficit of 3% of GDP, or RUB1.7 trillion ($28.32bn), a level that Putin has declared a "red line", thereby limiting areas where savings can be made. 



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