Russia's huge budget deficit under the burden of the war in Ukraine

Having recorded the second largest deficit in the budget since the collapse of the Soviet Union in 2022, this year Russia could have an even bigger deficit due to new increases in costs for financing its war machine, as well as Western sanctions, which are fully effective, the world media write. .

Russian Finance Minister Anton Siluanov said on Tuesday, January 10, that the budget deficit in 2022 has reached 2.3 percent of gross domestic product (GDP), which, according to Reuters, reflects the burden of the war in Ukraine on Russian state finances.

Before launching the invasion of Ukraine on February 24 last year, Russia planned a budget surplus of one percent of GDP. Back in September, Putin predicted a surplus of close to 500 billion rubles.

However, Siluanov said the deficit had reached 3,300 billion rubles ($47.45 billion).

At the end of last month, Siluanov admitted that Western restrictions on the price of Russian oil could increase Russia's budget deficit in 2023.

Costs of the Russian war machine

Struggling to finance its war machine, Russia has run its second-largest budget deficit since the collapse of the Soviet Union, according to The New York Times.

Russian revenues rose by 2.8 trillion rubles in 2022, or about $40 billion, but that was not enough to cover the rapid growth in expenditures, which rose sharply by 6.4 trillion rubles, or about $92 billion, officials said. .

Government officials presented the economic situation as positive.

Prime Minister Mihail Mishustin said that "on the whole, these indicators are not bad," while Finance Minister Siluanov, without mentioning the war, said that the Russian government met its goals "despite the geopolitical situation, restrictions and sanctions."

However, the New York Times points out, in the post-Soviet period, only the deficit in 2020, when the corona virus pandemic broke out, was greater than the deficit in 2022.

Although after the start of the Russian invasion of Ukraine, many experts predicted a catastrophic collapse of the country's economy due to Western sanctions and other restrictive measures, the Russian economy performed better than expected, fueled by high raw material prices.

In addition, according to the New York Times, some sanctions, such as a limit of 60 dollars per barrel on the price of Russian oil, were introduced later in the year, as a result of which they did not have a greater effect on the Russian economy.

 

Insufficient record revenues from energy sources

The war in Ukraine is costing Russia more than it has received in record revenues from oil and gas, writes the Financial Times, stating that the official recognition of worsening public finances came despite high energy prices and Moscow's ability to redirect oil exports to Asia.

In 2022, budget revenues increased by 10 percent compared to the previous year, but total spending increased by 26 percent, the British newspaper indicates, adding that the details of budget spending for 2022 are not publicly available because the Ministry of Finance classified them as state spending in June. secret because of "pressure from the USA, the EU and other hostile countries on Russia".

Moscow covered the deficit by diverting money from the state's National Welfare Fund, loans and introducing a one-time tax on the profits of Gazprom, the state gas monopoly.

The finance minister said the money from the increased spending was used to support people, mentioning the increase in pensions and the expansion of the subsidized mortgage program, but not the war in Ukraine. He also said that the deficit includes transfers for social programs and other off-budget funds, which did not receive payments because Putin granted the companies a delay.

Russia's conservative fiscal policy has helped stabilize its fiscal situation, the Financial Times states, with the assessment that Western sanctions, which will come into full force this year, will further burden budget finances.

The value of the Russian reference Ural oil is now below 40 dollars, which is significantly less than the 70 dollars set in the Russian budget law for 2023. Experts estimate that Russia, if the average price of Russian oil this year is around 60 dollars per barrel and consumption remains as planned, could face a deficit of around 4.5 percent of GDP.

According to the Financial Times, Russia's budget law foresees that defense spending at home and abroad will increase by 3,500 billion rubles ($50 billion) to 30 percent of total government spending in 2023.

 

Fund for rainy days and "income mobilization"

The Russian deficit this year of 47.3 billion dollars, due to the high costs of the war in Ukraine and the consequences of Western economic sanctions, is in sharp contrast to the surplus of 6.7 billion dollars in 2021, the Washington Post points out.

With spending rising by nearly 26 percent in 2022, apparently driven by military spending, the published figures offer a sobering picture of the economic costs of Putin's decision to launch an invasion of Ukraine that the Kremlin has sought to minimize, the paper said, adding that costs are expected to, " in blood and gold", will increase even more this year.

Russian business newspaper RBC reports that military spending is expected to jump by nearly 5,000 billion rubles, or $71 billion, in 2023 as Moscow tries to match the weapons donated to Ukraine by the US and other Western allies of Kiev.

Russian spending on security and law enforcement is also expected to rise by nearly the same amount, which, according to the Washington Post, likely signals the Kremlin's concern that the war could spark unrest.

After the Russian military's setbacks in Ukraine - first with the failure to take Kyiv, then with the humiliating retreat from Kharkiv and Kherson - the Kremlin, short of military equipment, began to buy drones from Iran, while being forced to introduce partial mobilization to compensate for heavy losses on the battlefield. This, the newspaper points out, led hundreds of thousands of men to flee Russia, which further harmed the economy.

 

After Russia tapped into its rainy day fund last year and imposed a one-time extra income tax on Gazprom, the Washington Post says there are now reports that Moscow is planning "revenue mobilization" and could pressure state-owned companies to provide more money for financing. war operations, including a proposal to introduce a one-time levy on fertilizer and coal producers.