Federal budget deficit in December widened as expected, while the current account unexpectedly turned red

RUSSIA ECONOMICS - In Brief 21 Jan 2025 by Evgeny Gavrilenkov

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The Ministry of Finance reported that in 2024, as a whole, the federal budget was in deficit of about RUB3.5 trln, which should be below 1.8% of GDP, i.e., a mere percentage of GDP. Revenues and expenditures looked close to what the government targeted, albeit actual revenues appeared below the amended target. As a result, the deficit turned a bit wider, albeit manageable. Revenues grew by about 26% last year (both oil and gas and non-O&G) amid a decent rate of economic growth, accelerated inflation, and a weakened ruble. Expenditures grew by 24% compared to 2023. So far, the 2025 budget plan looks realistic, as the nominal tax base expanded significantly in 2024. However, the usual mid-year expenditure amendments may alter the initial plan significantly. At the same time, the forthcoming amendments may not be as massive as they used to be in 2024 and in previous years, as Russia’s energy exports are unlikely to grow. Today, the CBR published its flash estimate of the 2024 balance of payments, and it appeared that in December, the current account turned negative amid declining exports and relatively stable imports. In 2024 as a whole, the current account surplus reached a mere $53.8 bln as in 4Q24 it narrowed to $4.8 bln from $7.8 bln in 3Q24, $17.3 bln in 2Q24, and $24.0 bln in 1Q24. The current account surplus shrank during the year amid growing imports. In 2025, imports will unlikely grow as the ruble may weaken even more. Even though the weakening ruble will trim imports, exports are unlikely to increase. If so, the O&G revenues of the federal budget won’t grow either, and their share in total revenues may fall from last year’s 30.3%.