In a massive austerity move, Russian President Vladimir Putin has removed about 110,000 employees from their jobs in the Ministry of Interior.

Last week, the President had signed an agreement to cut the workforce of the ministry to 10 percent, CNN Money reported.

The Russian economy contracted by 2.2 percent in the first quarter of the calendar year 2015.

The International Monetary Fund (IMF) estimated the country's gross domestic product (GDP) to shrink by 3.8 percent this year. The agency projects its GDP to decline by over 1 percent next year.

The Russian government is planning to reduce its spending by nearly 10 percent to revive the economy. But analysts believe that the government's latest austerity measures will result in further deterioration in the economy.

Russia is currently facing its worst economic crisis in years due to falling crude oil prices and sanctions imposed by the Western countries for Putin's role in Ukrainian crisis.

International crude oil prices have halved in the past one year owing to oversupply concerns. The slump in oil prices has hit the Russian economy hard, as oil remains a significant contributor to the country's exports.

The unemployment rate in the country rose to 5.4 percent in June compared to 4.8 percent in the same month last year.

After cutting his salary by 10 percent in March, Putin has asked all the government agencies excluding the Defense Department to cut their expenditure.

The Russian rouble has depreciated about 40 percent against the US dollar, fuelling the inflation rate in the country to over 15 percent.

The Central Bank had announced steep interest rate hikes last year, in order to arrest the slide in the country's exchange rate. Higher lending rates are also weighing heavily on the economy.