The deficit in the Russian state budget is likely to widen further this year due to lower export earnings, higher war-related expenditures and a steady decline in economic output. However, Moscow seems to be able to absorb this relatively well for the time being.
According to an analysis by the European credit rating agency Scope, the deficit is likely to rise to 3.5 percent of gross domestic product (GDP). In 2022, the deficit was more than two percent. “Sanctions and the war are limiting Russia’s fiscal flexibility,” the agency stressed.
The role of the National Wealth Fund
For the time being, however, Russia can relatively easily finance its deficit by using the National Wealth Fund. However, this is likely to melt: by the end of 2024, the fund will probably only correspond to 3.7 percent of GDP, while at the end of 2021 – so shortly before the outbreak of the war against Ukraine – it was 10.4 percent. Another way to close the budget gap is to issue domestic bonds to state-owned banks.
Problems have shifted structurally
According to Scope, the high spending on armaments will negatively affect the Russian economy in the long term, as well as at the expense of investments in infrastructure, digitization, housing and environmental protection. “The structural shift in spending will negatively impact Russia’s longer-term economic outlook,” the rating agency’s analysts said. The long-term growth potential is likely to be only 1.0 to 1.5 percent, well below that of other major emerging countries.
Larger budget deficit possible
Earlier this year, Russian Finance Minister Anton Siluanov admitted that the Western price cap on Russian oil could increase the budget deficit in 2023. “Is a bigger budget deficit possible? It is possible if the revenues are lower than planned,” said Siluanov. With the upper limits, the West wants to ensure that the Russian leadership has less money at its disposal for the war against Ukraine that started a year ago.
Source: Krone
I am Wallace Jones, an experienced journalist. I specialize in writing for the world section of Today Times Live. With over a decade of experience, I have developed an eye for detail when it comes to reporting on local and global stories. My passion lies in uncovering the truth through my investigative skills and creating thought-provoking content that resonates with readers worldwide.
