Forecasting that the Russian economy could shrink 3.8 percent this year on the back of lower oil prices and international sanctions, Russia's finance minister told CNBC that the country might not see trade restrictions being lifted any time soon.
"We are not optimistic concerning the sanctions," Russia's finance, Minister Anton Siluanov told CNBC on the sidelines of the International Monetary Fund/World Bank annual summit in Peru at the weekend.
"We don't anticipate they'll be lifted next year, though of course we would want it to happen as soon as possible."
Siluanov's comments come amid a period of economic turbulence and political uncertainty for Russia, brought on by the country's isolation after western sanctions were imposed on it for its annexation of Crimea in March 2014 and its role in the pro-Russian uprising in Ukraine.
The finance minister predicted that Russia's gross domestic product would shrink 3.8 percent in 2015 but said the economy was turning a corner and could see positive growth of 0.7 percent in 2016. To recover, he said, the government needed to adapt.
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"We need to cut expenditures in order to adapt the budget to the new economic conditions. To achieve this goal, the government has elaborated a number of measures. We need to make financial support to certain companies and industries more targeted. We need to cut spending on some state programs. We need to change indexation, including pension indexation. And it shows we are adapting budgetary policy to reflect these new economic conditions."
Moving away from oil
Russia's economy is still largely dependent on oil, a commodity which has seen a 50 percent-plus decline in value since June 2014, falling from a high of $114 a barrel then to around $50 a barrel now.
The combination of low oil prices and sanctions has weighed heavily on investor confidence, prompting large capital outflows from Russia (estimated at $65 billion this year, Siluanov said, an improvement on estimates made at the start of the year that were double that), weakening the ruble weaken greatly against the dollar and thus spurring on a rise in consumer prices.
The decline in Russia's fortunes on the back of a glut in global oil supply and lack of demand has prompted many within the Kremlin to urge for a faster diversification of the economy away from commodities, with minister Siluanov among those calling for change.
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"Our current goal is to make the economy and budget less dependent on oil," Siluanov told CNBC. "Our budgetary projections for the next year are based on the assumption of $50 per barrel – the level we have today -- and we have recently experienced a significant reduction in oil and gas revenue within the budget. It used to be about 52 percent of the budgetary revenues but now it's gone down to 43 percent," he said.
"While this is mainly down to the ruble depreciating, as well as the sanctions imposed against Russian companies, and under these circumstances we will have to develop other industries in order to promote import substitution to replace the goods that have become more expensive."
'Concerned' about China
While Russia appears to be looking within in order to find a way out of its crisis, it cannot escape the slowdown in other parts of the global economy, notably in emerging markets and neighboring China, that could also affect its recovery, Siluanov said.
"We are all dependent on the situation in the global economy and when preparing the budget for the economy we have taken this into account. We are concerned about the situation in China but we had a meeting earlier (in Lima) with our Chinese colleagues here and they told us they are quite optimistic and they expect economic growth to be closer to seven percent this next year."
"But no doubt the general the situation in the global economy will affect the situation in Russia, and that is why we need to focus on the development of internal demand, internal consumption, and as I said, the tasks set by the government."
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld
