The Russian budget deficit has not exceeded 2%, but it may become chronic

“Costs can snowball”

At the end of last year, the Russian budget deficit amounted to 1.9%, or 3.2 trillion rubles. The indicator can be considered more or less acceptable, if such a definition is generally applicable to the actual “hole” in the treasury. The problem is different: against the backdrop of persistent macroeconomic, sanctions, personnel and other risks, this phenomenon is becoming chronic and sustainable for the country. Eliminating the shortfall in public finances and finding additional resources for this will become increasingly difficult, expert economists warn.

In general, budget execution from January to December was extremely uneven: a monthly surplus was recorded for seven months, and a deficit for five months. Already in the first two months of 2023, the deficit reached almost 2.6 trillion rubles, that is, about 90% of the annual plan. The Ministry of Finance explained such a dramatic gap between revenues and expenses by advanced advance payments, which did not stop analysts from making alarmist forecasts: the final size of the deficit they expected reached 5 trillion rubles. In fact, the “hole” fell within the planned 2% of GDP, since, as the Central Bank explained, it was mainly (2.9 trillion rubles) financed from the reserves of the National Welfare Fund.

“In general, despite budget volatility measured in trillions of rubles, the economic situation does not cause concern,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. – A much greater danger than the treasury deficit is personnel shortage. Today the economy has material resources for growth, but it simply lacks human resources. As for the deficit indicator of 3.2 trillion rubles, the problem, at first glance, does not seem acute – taking into account the presence of a stable “pocket”: the volume of the National Welfare Fund is 13.4 trillion rubles (or 9% of GDP). However, according to the Ministry of Finance, from September to December 2023, funds in the fund decreased by 270 billion rubles. The trend is growing, which cannot but cause concern.”

In fact, everything is not so scary and fits perfectly into the “working norm,” says financial analyst and private investor Fedor Sidorov. December was marked by traditionally high year-end spending, as was January with the rush to conclude new contracts. Accordingly, a deficit was recorded there (as in February, April and July). These fluctuations are quite consistent with seasonality, while the remaining seven months showed a surplus, which is why the budget was able to be kept within the planned values. Now the Ministry of Finance has again started selling gold and foreign currency as part of the new budget rule. So, if we manage to “pull up” sagging oil and gas revenues, in 2024 the deficit will remain within 2% of GDP.

“From the point of view of global experience, the Russian figure of 1.9% of GDP is considered even low,” notes Alexey Vedev, director of the Center for Structural Research at RANEPA. – Let me remind you that the Maastricht agreements for the European Union allow a budget deficit of up to 3% of GDP. And the fact that in 2022 and 2023 it amounted to almost the same amount – 3.3 trillion and 3.2 trillion rubles, respectively – is associated with an increase in expenses, that is, with a stimulating budget policy. However, the Ministry of Finance is committed to a more conservative approach, intending to further reduce spending as part of the so-called budget consolidation. Whether the plan will work out is unknown. The key problem is that the Russian economy has high interest rates, and accordingly, the costs of financing the budget deficit can snowball.”

When discussing the development of the situation, one should focus on the already adopted law on the federal budget. And there the deficit is projected at 1.4% of GDP in 2024 and 0.7% in 2025, notes Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. The figure of 1.9% of GDP at the end of last year is formally small, but there is no need to relax: in any case, we are talking about trillions of rubles of missing income that must be somehow covered. What if this year expenses increase by 16% compared to 2023? The bad news is that the budget will remain deficit in 2025 and 2026, when the dynamics of spending should decline. So the problem becomes chronic and persistent.