Russia’s deficit increased to record levels in December, as sanctions on oil export revenues led to a drop in Russia’s budget. Vladimir Putin was also forced to spend more money on his invasion of Ukraine.
Bloomberg calculations, based on preliminary data from Tuesday’s government data, show that the fiscal gap hit a record of 3.9 trillion rubles ($56bn).
This brought the total year’s shortfall to around 3.3 trillion rubles, which was a reverse of the surplus recorded in the first 11 months.
Anton Siluanov, the Finance Minister, later confirmed the full-year figure in televised remarks at a government meeting.
Preliminary data revealed that spending was up by more than a third in the year compared to prewar forecasts.
Russia had previously set a target for a surplus in the state budget of 1% of GDP by 2022, before it launched its invasion of Ukraine on February 24, 2017.
Russia’s government spending is highly seasonal. Big spikes are often seen at the end of each year, increasing the deficit.
The high oil and gas prices during the first half offset rising spending. However, this trend is shifting now.
After the G7 countries imposed an income cap to limit the Kremlin, prices for Russian oil fell.
Late last month, Mr Siluanov admitted that the Western price cap could increase the budget deficit in this year.
Putin’s government is already reducing non-war expenditures and delaying them. They are also discussing raising taxes for large companies to cover the shortfall.
Russia was forced to borrow heavily from domestic debt auctions and draw on its rainy-day fund in recent months, as it diverts more resources towards defense and security.
Despite all the pressures, Russia’s financial position is strong thanks to years of hard work leading up to the invasion.
In line with 2022 levels, the deficit for this year is expected to be 2pc gross domestic product. However, the forecast currency is based upon an oil price of $70/barrel, which is about $20 more than December’s levels.
According to Alexander Isakov (economist at Bloomberg Economics), if prices for Russian crude oil remain at their December levels, revenues will drop about 2.4 trillion rubles or 1.6% of GDP. This is below the target for this year.
