I think I have said many times I have no idea where oil prices will be in a couple of months and the last year has proven it to me many times. They might hit 25$ or not, the ruble might roll to 125 or not and the inflation might reach new heights or not but something has become even clearer: The current Russian economy is largely built on the export of commodities throught which it funds it's large public sector and social expenditures.
Today the markets accelerated their sell-off and among the hardest hit was anything linked with commodities, indeed the specific Bloomberg index fell to a 16 year low:
If prices remain relatively low and the political climate bad the Russian economy will be in terrific trouble and reveal ever more just how much of it's relative success was due to influx of mostly Western capital, know-how and technology.The Bloomberg Commodity Index of 22 raw materials from oil to metals lost as much as 3 percent to 85.1752, the lowest level since August 1999. Shares in miners and explorers including Glencore Plc, BHP Billiton Ltd. and Exxon Mobil Corp. tumbled while Brent crude fell below $45 a barrel for the first time since 2009.
The IMF Country Report No. 15/211 offers a wealth of information with the graphic galore starting around page 22.
I confess I had to chuckle going from (i) to (iv)...Medium-term policy challenges. An ambitious and credible medium-term fiscal consolidation program is necessary to adjust to lower oil prices. Changes to the fiscal rule should be considered to support medium-term fiscal sustainability. Boosting potential growth will require implementation of structural reforms. This would include (i) strengthening governance and protection of property rights; (ii) lowering administrative barriers and regulation; (iii) increasing competition in domestic markets; (iv) enhancing customs administration and reducing trade barriers; and (v) improving the transparency and efficiency of public investment procedures.
Reinvigorating the privatization agenda, as soon as market conditions permit, would enhance economic efficiency. A deeper and more efficient financial system would improve the allocation of capital thereby enhancing economic growth.
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