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Russian Reserves March Toward $600 Billion As Sanction Threats Loom, Fitch Says

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The lower break-even price was partially achieved through the collapse of the ruble by roughly half compared with the U.S. dollar over the same time period.

Russia will continue to build up its foreign currency and gold reserves to protect its economy as threats of more U.S. sanctions loom, a top financial firm said.

Russian reserves will reach nearly $600 billion -- a record high -- by 2021 thanks to trade and budget surpluses, credit-worthiness agency Fitch Ratings said on August 9 as it upgraded the nation's debt ratings.

The Kremlin’s "prudent" economic policies have cut the price of oil required for the Russian budget to balance from $110 a barrel in 2013 to less than half that amount in 2018, according to Fitch.

The latest price available of Brent crude was at $58.30 a barrel on August 9.

The lower break-even price was partially achieved through the collapse of the ruble by roughly half compared with the U.S. dollar over the same time period.

Russia is the world’s second-largest oil producer and its budget is heavily dependent on crude prices.

The nation -- which defaulted on debt exactly 21 years ago this month -- is set to firmly surpass Saudi Arabia for fourth place globally among nations with the largest reserves.

Saudi Arabia and Russia both have around $520 billion in reserves. China, Japan, and Switzerland hold the top three spots.



Russia is building up its reserves to help stabilize its economy amid tense relations with the United States, which has imposed sanctions on Russia for its “malign” behavior on the world stage, including the annexation of Ukraine’s Crimean Peninsula and backing of separatists in eastern Ukraine.

Washington is threatening to impose more sanctions, including on Russia’s government debt.

The nation’s twin surpluses and large foreign-exchange reserves “means that it would be able to withstand sanctions, for example keeping foreign investors from holding and transacting in new sovereign debt,” Fitch said.

Nonetheless, Russia’s growth in the coming years will remain “weak” at under 2 percent, well below the average of other countries with similar ratings, the agency said. Russians have felt a drop in disposable income each year since 2013.

Unless broader reforms are implemented, according to the Washington-based lender International Monetary Fund (IMF), economic growth this year won't surpass 1.2 percent.

The IMF has welcomed Russian President Vladimir Putin's move to massively spend on health, education, and infrastructure, but said the spending plans "should be well targeted toward strengthening growth, and efficiently implemented."

The Kremlin's plans to boost growth through new projects could stumble amid low interest from private investors and delays in execution, the agency said. That could flame growing discontent and force the government to spend more, affecting its conservative budget policies and reserves.

“Perceived failure to raise growth and living standards could increase political and social pressures on the policy framework to provide greater support for domestic economic activity,” Fitch said.

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