Russia’s Budget Surplus Wiped Out To Finance Putin’s War In Ukraine

Russia’s budget surplus more than halved last month in a sign of the impact of Vladimir Putin’s invasion of Ukraine on his country’s public finances.

Preliminary data from Russia’s Finance Ministry showed that the country’s fiscal surplus shrank to 55 billion rubles ($860 million) in the first nine months, down from 137 billion roubles ($2.15 billion), Bloomberg reported.

Public finances have been strained as the Russian government supports the economy during a recession and spends more to meet the needs of the military, the financial news outlet reported.

Expenditures in 2022 have surged by 19 percent compared with the same period last year and nearly double the pace of growth in budget revenue.

“Non-oil tax collection has improved, as VAT collection normalized,” Russian economist Alexander Isakov told Bloomberg. “The Russian budget deficit will total 2.6 trillion rubles this year or 2 percent of GDP, provided non-oil revenues remain robust.”

Olga Bychkova, an economist at Moody’s Analytics, told the Financial Times that the deficit would widen to 9 percent of gross domestic product due to “limited growth, imports, and the op­portunity to spend oil and gas revenues.”

Russia’s finances have also been hit by less income from shipments of energy, its chief export earner. This followed Moscow’s decision to cut back gas supplies to Europe and sell oil at a discount to Asia, in particular to China and India.

Russian gas flows to Europe are about one-fifth of pre-invasion deliveries and Moscow has said it would keep Nord Stream 1, which runs under the Baltic Sea to Germany, shut unless the West lifted sanctions.

The International Monetary Fund (IMF) estimated that Russia’s economy will contract by 2.3 percent next year, the third worst performance in the world and that Russia’s public finances would remain in deficit until 2026.

It comes as a European Union Commission report said this week that sanctions imposed on Moscow were “melting away” Russia’s ability to finance the war.

“Markets are already turning away from trading Russian oil, months before the EU import ban kicks in,” the report said, according to EUobserver.

While there was a brief rise in energy prices earlier this year, “oil production is down by 10 percent, and gas production declined by 22 percent year-on-year in August,” according to the EU.

A partial mobilization announced last month to replenish troop numbers in Putin’s invasion has brought uncertainty to businesses that had already been hit by sanctions and were recovering from the fallout of the pandemic, Agence France-Presse reported.

Sofya Donets, chief economist for Russia at Renaissance Capital, said that Russians will be careful about their outgoings.

“People are looking to put their money aside,” she told the agency, “They’re not going to overspend.”

© 2022, GDC. © GDC and Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to with appropriate and specific direction to the original content.

Be the first to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.