Business-Finance Paper -Read FULL directions - Essay Example

Already the country’s currency, the ruble, had been the worst among currencies around the world in terms of overall performance for 2014, losing 48 percent of its value over the past year. As of January 20, 2015, the value of the ruble was pegged at around $65.2765 in the trading markets. Dropping oil revenues and the falling value of the ruble is compounded by threats from the ratings agencies to reduce Russia’s credit rating to junk, which would further increase the costs and risks of borrowing for Russia relative to international financial markets.

This would further cripple the country’s chances of being able to borrow money to finance its budget deficits. Already, the country had been using its dollar reserves to prop up the ruble’s value, spending about 20 percent of its total dollar hoard for the purpose, so that what had been a formidable reserve had been reduced to $386 billion. The fate of the reserves level of dollars for Russia is tied to the price of oil, and at $45 a barrel, the country is expected to be able to finance at least three years of budget deficits and eat through about half of its current dollar reserves.

With the economy expected to contract in 2015, the challenge for Russia is to be able to prudently make use of its dollar reserves to keep the economy afloat and the ruble from falling off a cliff in terms of purchasing power. The expected budget deficit for 2015 is about two percent of GDP, and the sanctions on Russia by the west due to the former’s meddling in Ukraine, plus the threat of a credit rating downgrade, all conspire to make it difficult for Russia to keep the economy on an even keel moving forward (Andrianova).

The situation amounts to a looming fiscal crisis for the Russian government, in other words. The deficit is growing because the oil price drop seems to be something that will not correct soon. Meanwhile, the credit downgrade and the sanctions from the Ukraine situation means that