Putin crisis as tumbling oil prices sees Russia facing huge social spending cuts

But while the country’s struggling hospital systems try to cope with mounting cases, the defiant President will continue to prioritise military spending over healthcare and promised social reforms. Petroleum accounts for one-third of Russia’s GDP, half of its budget, and two-thirds of exports. The coronavirus pandemic has led to the collapse of the oil market, with prices on the benchmark Brent crude exchange plummeting to just $15.98, a level not seen since 1999.

Idle aircraft and cars as well as factories falling silent, have led to a 30 million barrel-a-day drop in consumption.

Russia’s so-called “break even” point is $42 per barrel, with some government officials confirming that even a drop to $35 would mean a budget deficit of £40bn this year.

It comes as Putin’s popularity hit a record low following his move to make himself de- facto president for life, with one poll last month showing a 35 per cent disapproval rating, a level not seen for six years.

But  public unrest was already on the rise, with an increase in protests over living conditions.

The current Covid-19 has made the situation more urgent.

There’s little doubt that Putin will choose to continue to focus on military spending


On Thursday,  Moscow Mayor Sergei Sobyanin, who was urging Putin to take action against Covid-19 long before the Russian President finally made a state broadcast on March 25, warned that the capital would run out of hospital beds next month unless 30,000 more were made available.

He said the country as a whole would need a further 50,000, casting doubts on official statistics reporting 4,774 new cases, a second straight day of decline.

The oil slump has already forced  Putin to postpone several social spending programs that he’d hoped would stimulate a stagnant economy and quell growing protests.

His twenty year reign, which has seen a ramping up of Russian nationalism and foreign aggression, has been financed, largely, by high oil prices.

Russia’s latest three-year $300bn budget, ratified in December, included a $31.2bn bonanza in social welfare spending to address mounting discontent and make the constitutional reform affording him power for life more palatable.

These included hot lunches for elementary school pupils, a doubling of pay for those caring for children aged 3-7 years,  salary hikes for teachers, and a 120 per cent increase in maternity pay allowance.

On Tuesday Moscow sought to reassure Russian, with Mr Putin’s spokesman Dmitry Peskov saying: “Our government, our leadership has all the necessary reserves to dampen the negative effects of [oil price] volatility on our economy.

“Of course, if necessary, all these resources that are at hand will be used.”

However, while Russia has a  healthy $160bn sovereign wealth fund for “rainy days”, treasury sources were last week forced to admit it may only bridge budget gaps for four years if oil prices don’t increase soon – half the amount of time predicted last month.

US announces ‘deep concern’ about Turkey’s Russian missile strategy [ANALYSIS]
Kim Jong-un ‘dead’ – panic as photograph showing ‘funeral’ goes viral [PHOTO]
Kim Jong-un death risks North Korea ‘explosion’ against neighbours [REACTION]

And Russian finance minister Anton Siluanov said half that money would be spent in 2020 alone.

Speaking last night Dr Andrew Foxall, Director of the Russia and Eurasia Studies Centre at the Henry Jackson Society think tank, said: “There’s little doubt that Putin will choose to continue to focus on military spending and foreign posture even as Russia grapples with the perfect storm of an oil slump and the Coronavirus crisis.which, we’re pretty sure, Moscow isn’t being transparent about,

“Only three days ago 15,000 soldiers were rehearsing in a Moscow for the now cancelled victory celebrations which were due to take place on May 9. They’ve now been placed in quarantine.

“But choosing to cut what he sees as the softer option of social reform will inevitably lead to higher dissatisfaction ratings from ordinary Russians, who are already demonstrating a level of scepticism not seen before.”

Source: Read Full Article