The Federal budget deficit explosively widens in January

RUSSIA ECONOMICS - In Brief 07 Feb 2023 by Alexander Kudrin

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The Ministry of Finance reported that the federal budget deficit reached R1.760 trln in January, i.e., over half of the annual target, as revenues and expenditures accounted for R1.356 trln (5.2% of the 2023 plan) and R3.117 trln (6.1% of the target). Usually, January budgetary statistics are not too indicative of annual expectations of the budget performance, as January is a short month in terms of working days. On top of that, revenue statistics for January may be volatile and depend on the nature of mutual settlements between Minfin and taxpayers. Some taxes, such as VAT, taxpayers may pay quarterly. According to Minfin, it resulted in low non-oil-and-gas tax collection this January (VAT collection fell by 44% y-o-y). Oil-and-gas tax collection fell by 46% y-o-y as the average Urals price was $49.48/bbl last month while the ruble remained abnormally strong. It is yet too early to call budget execution data alarming, as non-oil-and-gas revenues will likely increase in the following months. However, there is a limited possibility of getting more oil-and-gas inflows unless the ruble weakens considerably, say to over $/R80 and weaker. Currently, the ruble remains too strong relative even to 2020-2021. In 2022 the real effective ruble appreciated by 25.8%, and the real ruble strengthened against the dollar by 15.0%. Therefore, the ruble should retreat by at least 15-25% (and ideally even more) to support not only the flow of budgetary revenues but also the economy in general. This process has already started. However, the fiscal rule that the Finance Ministry refers to and the need to finance expenditures force the ministry to sell its reserves and prevent the ruble from...