Russia’s public deficit could increase significantly, potentially reaching nearly triple the official target by the end of 2026. This projection comes as a result of decreased oil purchases from India and higher trade discounts on oil, which are reducing revenue. A source informed Reuters that a government-linked think tank’s calculations, although not published, suggest that energy revenues may drop by 18% by 2026. This would lead to a deficit ranging from 3.5% to 4.4% of GDP, compared to the planned 1.6%. The total expected budget revenue might fall by 6% from the plan to around 37.9 trillion roubles ($494.78 billion).
The budget situation is worsening, with revenues declining and expenditures on the rise. These estimates assume the ongoing war in Ukraine and the continuation of Western sanctions impacting Russia. Recent government data shows a significant drop in energy revenues, which halved in January, reaching the lowest level since July 2020. The Russian economy, which managed relatively well during the early years of the war, is experiencing a slowdown, particularly due to high interest rates aimed at controlling inflation.
Western sanctions have forced Russian oil to be sold at more than 20% discounts to international prices. Additionally, the rouble’s strength against the dollar has affected revenues since oil taxes are calculated in dollars but paid in roubles. Calculations suggested a possible 30% decrease in Indian oil purchases, which remains a concern. Meanwhile, Russia and Ukraine are involved in U. S.-mediated talks in the UAE, and progress towards a settlement is reported.
Despite significant fiscal reserves of 4.1 trillion roubles that could be used to cover the deficit, analysts believe they could be depleted within a year at the current revenue decline rate. While the source stated that this situation is manageable, it would require financial authorities to take action. Suggestions for spending cuts may not be appropriate during an economic downturn, as some existing budgetary assumptions are seen as unrealistic.
The Finance Ministry, which conducts its calculations, has not commented. Estimates from various banks align with the think tank’s findings, predicting large revenue misses this year. Russia’s budgetary framework relies on a threshold oil price for funding surpluses into reserves, which currently remains below the established cut-off price, vital for maintaining fiscal stability against sanctions.
With information from Reuters
