Russia’s budget gap surges to record as war hits finances

RUSSIA’S federal budget deficit widened to a record in December as revenues plunged amid restrictions on oil exports and spending on the invasion of Ukraine grew.

The fiscal gap reached a record 3.9 trillion roubles (S$75 billion) last month, according to Bloomberg calculations based on preliminary government data released on Tuesday (Jan 10). That brought the full-year shortfall to about 3.3 trillion roubles, reversing a surplus in the 11 months of the year.

Finance Minister Anton Siluanov later confirmed the full-year figure, which he said amounted to 2.3 per cent of gross domestic product (GDP), in televised comments at a government meeting. “Those indicators aren’t bad,” Prime Minister Mikhail Mishustin said after Siluanov’s brief report. Neither official mentioned the war.

The preliminary data showed spending for the year was up more than a third compared to pre-war forecasts. government expenditure in Russia is highly seasonal, with big spikes often coming at the end of the year, widening the deficit.

Inflows from high prices for oil, gas and other commodity exports in the first half helped offset rising spending, but that trend is now shifting.

Prices for Russian oil collapsed after the Group of Seven nations imposed a cap aimed at limiting the Kremlin’s earnings. The government has already started reducing or delaying non-war spending and is discussing higher taxes for some big companies to help cover the shortfall.

Despite the pressures, Russia’s fiscal position remains strong, thanks to years of strict policies leading up to the invasion. The deficit this year is forecast at 2 per cent of gross domestic product, roughly in line with the 2022 level. But the currency forecast is based on an oil price of US$70 per barrel, about US$20 above levels seen in December.

If prices for Russian crude remain at the December level, revenues will fall about 2.4 trillion roubles, or 1.6 per cent of GDP, below target this year, according to Alexander Isakov, economist at Bloomberg Economics. BLOOMBERG