This is the third in a series of articles on the Russian economy.

The Russian economy is unlikely to offer up any more big surprises in 2016. The stock market will become more stable. Oil prices aren’t expected to fall below $25 per barrel or rise above $40–45 per barrel.

The Russian government will resist economic reforms and steer clear of interfering too directly in the economy. The only exceptions might be the use of small-scale monetary emissions and tax increases to plug the biggest gaps in the budget and to prevent a rise in unemployment.

Inflation could reach anywhere from 8 to 16 percent, depending on how strict monetary policy will be and how low oil prices will remain. The exchange rate will be dictated by oil prices and inflation.

As long as oil prices recover at least partially by the end of the year, the ruble is unlikely to fall below 90 rubles per dollar. At the same time, it cannot rise to more than to 75–80 rubles per dollar, at least before the end of the year.

Gross domestic product will decrease by 1–4 percent in adjusted rubles, or by 9–20 percent in U.S. dollars, to about $7,500 per capita. Key investment indicators will fall by between 10 and 20 percent, while long-term investment, including new-build construction, will fall even more. According to some forecasts, new builds, and in particular residential construction, could decline by up to 50 percent.

Many wonder whether the government will run out of money. Thanks to the flexible ruble exchange rate, the Russian budget will have a reasonable deficit. The government does not expect the indicator to exceed 3 percent of GDP, or $25 billion.

If oil remains at around $25 per barrel and inflation does not soar, the budget deficit could increase to as much as $60 billion, or 7 percent of GDP. Either amount could be offset through a combination of unsecured monetary emissions, increased debt, and the use of gold and hard currency reserves and reserve funds.

However, this is just a superficial take on the situation. In reality, a large share of budget funds, 30–70 percent, depending on the sector, will be used to pay for foreign goods and services, regardless of what the money was earmarked for.

This means that the absolute purchasing power of the recipients of budget funds will suffer significantly from ruble devaluation. It is difficult to say exactly how the effects will play out, but rough estimates show that the purchasing power of the Russian budget will fall by 15 percent compared to 2015 and by 25–30 percent compared to 2014.

The tax burden on businesses and individuals will rise in 2016 as a result of hikes in existing taxes and duties, expansion of taxable categories, and the creation of new direct and indirect levies collected by various levels of government.

While ordinary people bear the burden of new taxation, we are likely to see a growing number of financial schemes benefiting organizations involved in lobbying or settlement and collection of obligations. Paid parking lots and the controversial Platon toll payment system, in which private agents get most of the income, while the budget receives dregs that do not even cover its expenses, are just a dry run for a new way for businessmen close to the Kremlin to make money in conditions when their usual sources of revenue are depleted.

As the natural resources under their control become less profitable, individuals and structures close to the regime will increasingly rely on direct collection of funds from the population, drawing on the traditions of medieval feudal systems.

As the tax burden increases, business activity will dwindle and a growing portion of small and medium business operations will move into the shadows. In addition, since trade is easier to move into the shadows than production, the latter will shrink at a faster rate, losing its market share to low-quality grey imports.

In 2016, overall production will fall, though some growth is possible in specific sectors that target export, as a result of lower input costs, or domestic demand, due to the loss of affordable imports and the reduction of purchasing power.

Furthermore, the quality of output in a wide range of sectors will continue to deteriorate, while the share of bootleg and counterfeit products will increase because of poor control by oversight bodies, rampant regulatory corruption, and producers’ desperation to cut expenses.

All this will put the banking system under stress. It is unclear how much capital it has. For many years, the Central Bank of Russia has done everything that it could to enable commercial and state-owned banks to conceal the state of their balances, artificially inflate their capital with overvalued assets, use circular schemes, and falsely assess credit and investment risks.

The efficiency of the banking system in Russia is much lower than in the United States and the European Union, even in terms of assets per employee. The scale is much smaller, while credit risks are much higher, and these risks will rise almost exponentially in 2016. Over 2015, arrears on consumer loans rose 30 percent. The meaning of data on commercial loans cannot even be grasped, since it is so heavily edited.

On the other hand, the number of banks in Russia has been decreasing by about 10 percent per year. Today, there are fewer than 700. Meanwhile, the concentration of assets is exceedingly high, with the five largest banks accounting for 55 percent of all assets in the banking sector and the 50 largest banks controlling 87 percent. Thus, in order to keep the banking sector afloat, it would be enough to safeguard just over 50 banks; the bankruptcy of the rest would not have significant consequences, outside of flushing out the system and sterilizing the assets of hapless investors who had pursued higher interest rates.

The aggregate capital of the banking sector officially does not exceed 9 trillion rubles. Russia could technically even recapitalize its entire banking system. In reality, banks are unlikely to need more than 1–1.5 trillion rubles in additional capitalization in 2016.

Of course, the government will not be able to compensate the 41 trillion rubles in issued loans—especially since we can expect credit arrears and defaults to spike.

However, the banks also have 44 trillion rubles in corporate and individual deposits and the government has a number of “stabilization measures” at its disposal, including very effectives ones such as forced conversion of deposits and investments at a low ruble exchange rate, or freezing of deposits with partial transfer of funds into the banks’ capital and partial conversion into long-term government bonds, among others.

However, these are extreme measures that we are unlikely to see in 2016. The situation might change, though, by 2018, the year when presidential elections are scheduled to take place, and when the banking system’s buffer will run out even if the oil price is at $50 per barrel.