Federal budget performance improves in March

RUSSIA ECONOMICS - In Brief 09 Apr 2025 by Evgeny Gavrilenkov

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The Ministry of Finance reported that in 1Q25, federal budget revenues reached nearly R9.1 trln and were up by 3.8% y-o-y. Oil-and-gas (O&G) revenues accounted for 29.2% of total revenues and were down by 9.8% y-o-y. The non-O&G revenues grew by 10.6% y-o-y, which is more or less in line with the y-o-y inflation. In contrast to 2M25, the 1Q25 looked markedly better – not least due to the improved collection of O&G revenues in March. The latter could be a one-off effect as, according to the CBR, exports soared in February. Partially, it could have been due to the repatriation of previously delayed export earnings. Overall, an excessively strong ruble (about USD/RUB 85) trims revenues associated with the exchange rate, such as foreign trade duties and mineral resource taxes. In 1Q25, federal budget expenditures grew by 24.5%, y-o-y, and the government allocated 20.3% of the annual expenditure plan. The budget deficit reached nearly R2.2 trln, which is not too high a number for a R200 trln economy. Meanwhile, the deficit for 2025, as a whole, was targeted at R1.2 trln. Generally, despite the lack of O&G revenues, budgetary performance doesn't look too bad, even though revenue collection may be below the plan this year. The lack of O&G revenues will be offset (at least partially) by faster growth of the non-O&G revenues. However, the government may face certain limits if it sticks to the traditional upward expenditure amendments – even if the ruble weakens amid the fallen oil prices and gets back above USD/RUB 90. If amendments are limited, we may see faster disinflation in 2H25 and the CBR reaction.