The budget was in surplus in 9M22, but turning into a deficit in 2022 as a whole amid soaring expenditures

RUSSIA ECONOMICS - In Brief 12 Oct 2022 by Alexander Kudrin

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The Ministry of Finance reported that the federal budget posted a small surplus in 9M22 (around R55 bn). However, an expected deficit in 4Q will significantly overlap this surplus as expenditures are to soar. According to the initial budget version, the government planned to spend R23.7trln, while the most recent speculations suggest it will raise spending to R29.0trln. The Duma budgetary hearings keep going, and things may still change. In 9M22, the government spent a bit less than R19.7trln, while revenues only slightly exceeded this level. It looks as though in 4Q22, the federal government has to allocate around R9.2trln, i.e., almost one-half of what it spent in 9M22. The breakdown of expenditures is no longer published, but it is easy to guess where additional spending will be allocated. There are speculations that the federal budget revenues will reach R27.7trln, i.e., the government plans to raise in 4Q22 around R8.0trln in revenues. A couple of weeks ago, State Duma approved an idea to increase the mineral resource tax for Gazprom starting in 2023. Meanwhile, the company will pay quite a significant amount of additional taxes in 4Q22, as in mid-year, Gazprom decided not to pay the 2021 dividends. Still, it might be challenging for the government to meet this year's revenue target. Hence, the federal budget deficit may exceed the R1.3trln level, which is currently a working assumption. The 2023 budget assumes the same level of expenditures as in 2022 but lower revenues (R26.1trln). The government can still finance it from available reserves. However, as the war games can easily last much longer and require burning more cash to keep tanks and missiles moving in 2...