February spending advance increased current deficit

The logic of federal budget execution in the first two months of the year in 2024 repeated last year’s – advanced advances of expenses led to an increase in the deficit almost to its planned value for the year. The increase in the deficit, however, did not become excessive – it was restrained by the increase in income, which in January-February, compared to the low base at the beginning of last year, grew noticeably more than expenses – by 59% versus 17%.

After a balanced start to the execution of the federal budget in January with a deficit of 308 billion rubles, or 0.2% of GDP (see Kommersant on February 8), in February expenses grew noticeably more than income. As a result, as follows from the Ministry of Finance, the deficit at the end of two months increased almost fivefold, to 1.474 trillion rubles. (0.8% of GDP). The target for the entire year (RUB 1.595 trillion, or 0.9% of GDP) has thus almost been achieved. However, the situation was approximately the same after the first two months last year, but then it normalized, and at the end of the year the deficit fell within the planned 2%, amounting to 1.9% of GDP (see Kommersant on January 12).

As in 2023, at the beginning of this year the Ministry of Finance explains the increase in expenses, including “the prompt conclusion of contracts and advance financing for individual contracted expenses” – but if in 2023 advances were mostly sent to recipients in January, now – in February. As a result, expenses in the first two months of 2024 amounted to 6.499 trillion rubles. (RUB 2.704 trillion in January and RUB 3.795 trillion in February). Growth relative to the same period in 2023 is 17%.

Note that until 2023, expenses did not have such a pronounced seasonality. Since the “Social Policy” section has not previously required such generous advances, it can be assumed that we can talk about advanced financing, including for the largest section of the budget – “National Defense” (its share is 29% of all expenses, another 9% comes from “National Security and Law Enforcement”). Let us remind you that the Ministry of Finance has not disclosed the structure of expenses for their current implementation since May 2022, citing the desire to reduce the risks of introducing new sanctions.

Budget revenues in January-February, compared to the low base of the beginning of last year, grew noticeably more than expenses, by 59%, to 5.025 trillion rubles. Non-oil and gas revenues from this amount are equal to 3.405 trillion rubles. (plus 53.5% compared to the same period last year). The Ministry of Finance clarifies that the reason for this increase was, among other things, the receipt of “non-tax revenues of a one-time nature,” including payments from auctions to secure quotas for the extraction of aquatic biological resources). However, in absolute numbers, the increase was primarily due to the largest Russian tax, VAT. Its collections amounted to more than half of all non-oil and gas revenues for two months – 1.868 trillion rubles. (we are talking about all tax revenues – “domestic” and “imported”). The increase in VAT collections compared to the same period last year is 15%.

Oil and gas revenues in the first two months of the year increased by 71% compared to last January-February, to 1.621 trillion rubles. Such revenues showed a significant increase in February – plus 40% compared to January, 946 billion rubles. The reason for this, given the virtually stable price of oil, was the previously adopted amendments to the Tax Code stating that for production in January 2024 (the tax is paid with a one-month lag), oil workers will pay a one-time mineral extraction tax at an increased rate – to compensate for budget losses caused by not entirely successful government manipulations with a fuel damper last fall (for more details, see “Monitoring” in “Kommersant” dated March 6).

Vadim Visloguzov