Russia’s budget deficit reached Rbs1.76tn ($25bn) in January as the Kremlin increased defense spending and Western sanctions began to hit the country’s oil and gas revenues.
The official figures are the latest sign of the damage that has continued to wreak havoc on the economy nearly a year after President Vladimir Putin’s invasion of Ukraine.
Revenue from oil and gas fell 46 percent year-on-year to 426 billion rupees, the finance ministry said on Monday, attributing a drop in prices to a decline in exports of Urals, its main crude export mix, and natural gas. has been held responsible. Ural has traded at a significant discount to the global Brent benchmark since the conflict began in late February 2022.
Spending is set to rise 59 per cent year-on-year to Rbs3.12tn in January 2023, amid largely classified plans to increase defense spending to Rbs3.5tn this year. Ukrainian officials have warned in recent days that they believe Russia is set to launch a major offensive in the coming weeks to mark the one-year anniversary of the conflict.
The preliminary monthly figures – the first since Western countries imposed price caps and partial sanctions on Russia’s oil last December – mean the deficit is about 60 percent of the level expected for the period this year. The Finance Ministry said it is on track to meet its budgetary targets for 2023.
Natalia Lavrova, chief economist at BCS Global Markets, the brokerage’s investment banking arm, said the data marked the first time in its modern history that Russia had sharply increased spending at a time when revenues were falling sharply.
“We only saw something similar in 2015, when there was a sharp increase in spending on national defense,” she said. “However, the big difference between 2015 and 2023 is that the revenue dynamics were not as catastrophic at that time.”
The finance ministry said the decline in oil and gas revenue was accompanied by a 28 per cent drop in other revenue to Rbs931bn, attributing it to a decline in VAT and corporate tax.
The only similar drop in tax revenue on record was during the first wave of the Covid-19 pandemic in 2020, Lavrova said, when Russia implemented sweeping lockdown measures.
“It is clear that budgetary risks are rising: on both the expenditure and revenue sides,” Lavrova said.
Moscow, which normally derives half of its revenue from oil and gas, has shielded its economy from shocks from Western sanctions by increasing the volume of subsidized energy sales to countries such as China and India amid record energy prices last year. Put.
But Putin’s “economic mobilization” campaign to support the war effort has driven up spending, while sanctions prompted Russia to sell oil last month at an average price of $49.48 a barrel, a year-over-year low. The year is down 41 percent and well below the $70-. The per barrel level was assumed in Russia’s budget.
The continuing hit to Moscow’s coffers has prompted the finance ministry to look for ways to offset the mounting deficit.
Russia sold Rbs38.5bn of Chinese renminbi and gold from its rainy day national welfare fund last month as part of a move to raise it from Rbs2.5tn to Rbs2.5tn in the first quarter of 2023 Planned to issue Rbs800bn in local bonds in the US. Already planned Rbs1.7tn.
