Russia could burn through its reserves in a year

Russia's foreign currency reserves slipped another $6.4 billion last week as the central bank and the Finance Ministry continues the battle to prop up the ruble. If it continues at that rate, the $368.3 billion it has left will be all but gone by this time next year.

The country's reserves have fallen over $100 billion from $469.9 billion in June last year as the collapse in global oil prices sent Russia's currency tumbling. Russia relies on oil and gas revenues for around 10% of GDP and half of federal budget revenues, so when the price falls, so does the economy.

Morgan Stanley estimates that "every $10 fall in the oil price means a $32.4 billion fall in oil and gas exports, which is equivalent to about 1.6% of GDP" and around a $19 billion fall in government budget revenues.

In order to protect the country's business from the collapse in the value of the ruble, the central bank and the Finance Ministry have been selling dollars and euros and buying up rubles in order to prop up the latter's price. While this helped to stabilise the currency, the falls have already thrown Russia's banking sector into crisis and forced the government to cut its budget by 10% this year.

As the Bank of Russia told Russian news service TASS: "The reduction of international reserves for the week by $ 6.4 billion, or 1.7%, is a result of repo transactions in foreign currency and reduced balances on the Russian Finance Ministry and with the Bank of Russia, as well as the negative balance of foreign exchange and market revaluation."

If the falls continue at around $6 billion a week they will be all but exhausted by this time next year. However, at least one key threshold - sufficient reserves to cover at least six months of imports in case of emergency - has already been breached.

Russia's former finance minister and current chairman of the Committee of Civil Initiatives Alexei Kudrin wrote a blog in the daily newspaper Kommersant last year, available reserves could barely cover six months of imports at current prices.

"Six months of Russia's imports are worth approximately half of the current level of international reserves, which are valued at around $454 billion. If we subtract the reserves used to insure the government's budget, the remaining value of reserves only slightly exceed the amount needed to pay for six months of imports."

Some analysts say that six months is the critical level to insure the Russian population against the possibility of severe hardship in case the crisis deepens and the Russians are deprived of foreign goods. (Russia imports a large amount of staples including butter, cheese, and meat.) S&P think that this level may already have been breached and indeed reserves are likely to continue to fall for the next few years.

The Russia crisis is not over yet.