Russia’s budget deficit has risen sharply due to high spending on the offensive war in Ukraine and Western sanctions. This is mainly due to skyrocketing military spending and slumps in the most important export commodities: oil and gas.
The deficit for the period from January to July was 2.82 trillion rubles – the equivalent of $29.3 billion – or 1.8 percent of gross domestic product (GDP), Russia’s finance ministry announced on Tuesday based on preliminary estimates.
Over the first seven months of last year, Russia reported a budget surplus of 557 billion rubles. According to the preliminary data, expenditures increased by 14 percent, while revenues contracted by 7.9 percent.
Military spending is exploding
The offensive war in Ukraine is becoming increasingly costly for Russia and putting an increasing burden on state finances. Russia has doubled its defense spending target to more than $100 billion by 2023, according to a government document reviewed by Reuters.
That is about a third of all government spending. The Ministry of Finance stopped publishing individual monthly budget data last year. But according to Friday’s figures, Russia ran a deficit of 222 billion rubles in July, following a monthly surplus in June.
Russia closes gaps with national wealth funds
Finance Minister Anton Siluanov has repeatedly stated that Russia is sticking to the target of a deficit of no more than 2 percent of GDP by 2023. However, he admitted in July that 2.5 percent was also possible.
The forecasts of the International Monetary Fund:
Last year it was 3.29 trillion rubles. To close the gaps in the state budget, the government this year called on the National Wealth Fund to the tune of about 551 billion rubles – the equivalent of about $5.7 billion.
The ministry expects budget spending to normalize following the accelerated funding of “certain contracted expenditures in January, February”. Publicly available records show that Russia spent about two trillion rubles — the equivalent of about $21 billion — on the military during these months.
Oil and gas exports collapsed
Income from outside the energy sector increased by 19.8 percent on an annual basis in the period January to July. But revenues from Russia’s main exports, oil and gas, fell 41.4 percent. The Treasury Department justified this with lower prices for crude oil and natural gas exports, both of which are directly affected by sanctions from the West.
However, according to the ministry, Russia is on track to surpass its baseline full-year energy revenue target of eight trillion rubles.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
