Navigating the Fiscal Landscape: Russia's May Surplus
In May, Russia witnessed a slight budget surplus, which enabled the nation to reduce its deficit for the initial five months of 2023 to 3.41 trillion roubles ($41.9 billion). The finance ministry revealed this decrease on Tuesday, crediting slower monthly expenditures as the cause.
Unpacking the Budget Impact of Defence and Sanctions
Russia reported a surplus of 1.59 trillion roubles from January to May 2023. However, expenditures related to its military campaign in Ukraine and the effects of Western sanctions on its oil and gas exports have strained governmental funds. Surpassing expectations, this year's deficit has already reached 117% of the annual plan.
Economic Growth Amid Rising Defence Spending
The surge in defense spending has played a vital role in maintaining Russia's industrial sector. This boost drives economic growth projections for the year and facilitates Moscow's ongoing military operations in Ukraine.
Understanding the Surplus and Deficit Dynamics
The finance ministry stopped sharing individual monthly budget data in 2022. However, according to Tuesday's reports, Russia posted a surplus of 13 billion roubles in May, contrasting with the one trillion-rouble deficit experienced in April. To meet this year's expenditure target of 29.1 trillion roubles, the monthly spending, which was at its lowest in May, must continue to drop.
Non-Oil Revenues Rise as Oil Revenues Fall
Non-oil-and-gas revenues increased by 9.1% from January to May, compared to last year. However, the revenues from oil and gas, which are critical to Moscow's economy, were 49.6% lower. The finance ministry attributed this drop to decreased prices for Urals crude and reduced natural gas export volumes.
Revising the Fiscal Forecast: Opinions Diverge
While Finance Minister Anton Siluanov insists that Russia's budget deficit will not exceed 2% of GDP this year, many analysts and institutions, including the International Monetary Fund, expect a significantly wider budget deficit.
Mitigating the Deficit: Looking Ahead
On Tuesday, the finance ministry projected a recovery in tax revenues from the oil sector in the latter half of the year. To counter the revenue shortfall, Moscow has begun selling international reserves to help cover the deficit. Analysts have also suggested raising taxes as another alternative. Russia has already utilized nearly 440 billion roubles from the National Wealth Fund (NWF) to cover the deficit this year.