Russia’s budget gap surged in the first four months of the year, exceeding the full-year target as spending surged amid the war in Ukraine and energy revenues plunged under pressure from sanctions and other restrictions.
(Bloomberg) — Russia’s budget gap surged in the first four months of the year, exceeding the full-year target as spending surged amid the war in Ukraine and energy revenues plunged under pressure from sanctions and other restrictions.
The federal deficit hit 3.42 trillion rubles ($45.4 billion) in the period, beyond full-year plan of 2.9 trillion, the Finance Ministry said. Spending jumped 26% while revenues were down 22%, dragged lower as income from oil and gas fell by more than half from the year before.
“The big question we can’t answer yet is what will happen to expenditures in the rest of the year,” said Sofya Donets, an economist at Renaissance Capital. “What happened with revenues, both energy and non-energy, was to be expected.”
What Our Economists Say…
“Russia’s budget balance continued to deteriorate in April. Despite government efforts to rein in spending, fresh data does not provide evidence it is succeeding. Surging public spending is likely to push inflation higher in the coming months and require the central bank to roll back some of the policy rate cuts it delivered last year.”—Alexander Isakov, Russia economist.
The Finance Ministry said the spending surge was driven by advance payments made early in the year that wouldn’t continue. The ministry didn’t say what that money went to, but economists said it seemed linked to war costs.
Russian Oil Revenues Slump 67% in April Amid Sanctions Hit
At the same time, the ministry said revenues showed signs of stabilization in April. It predicted that changes to taxes in the wake of the price cap imposed by the US and it allies on Russian oil exports would help energy earnings recover, expecially later in the year.
Kremlin economic aide Maxim Oreshkin has forecast the budget will swing to surplus later this year, but the Finance Ministry hasn’t confirmed that.
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