Russia Prepares for Junk Status as Rubblegeddon Continues

The Ruble continues its decline and as sanctions continue to bite into the Russian economy, over the Ukraine, coupled with the decline in oil prices , Russia is in bad economic shape. Russia is getting hit hard and its means a credit rating downgrade to junk is just around the corner.

Moscow is beginning to understand that the situation is not good and has admitted the downgrade chances are pretty high at this point. The credit agency giant, Standard and Poor’s is already beginning a complete review of Russia whose credit rating is already just one notch above junk and already has a negative outlook.

To make matters even worse for Russia, the World Bank just cut the country’s growth forecast to a 2.9 percent contraction in 2015. This is a sharp revision from last December’s number which was at a 0.7 percent contraction.

Oil and Sanctions Brings Budget Cuts

Today, according to Reuters, the country’s Minister of Finance, Anton Siluanov, brought even more doom and gloom when he stated that Russia’s revenue would fall by $45.6 billion next year if the price of crude averages $50 a barrel. The price of crude is currently hovering near $45 thanks to a lack of demand and over supply. This is hitting major oil exporters, like Russia hard.

Siluanov was not finished, as he announced that thanks to the weakness in oil, the country has a $180 billion revenue shortfall on the books. Sanctions on Russia thanks to the Ukraine mess has added another shortfall of $60 billion.

Thanks to this, Siluanov is cutting the budget by 10 percent this year, including stopping any spending on defense. In addition, Moscow is getting ready to use its reserve funds to boost liquidity.

Russia is in a difficult situation. Even they know this as Moscow is changing its tune on how to handle this economic crisis. Foreign exchange reserves are nice until you have to use them then the financial markets start to worry you need the cash to survive. This adds even more pressure on the already embattle Russian economy. As long as the price of oil continues to plummet, the world and the markets will view Russia as fundamentally sick.