The Russian budget is still in surplus in 11M22 as massive spending is due in December

RUSSIA ECONOMICS - In Brief 13 Dec 2022 by Alexander Kudrin

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The Finance Ministry reported that the federal budgetary spending was moderate in November (R2.2 trillion) and was on par with volumes seen in the previous months. In 11M22, the government spent R24.2 trillion, while the amended 2022 budget assumed expenditures of around R29.0 trillion. Even though allocating nearly R4.8 trillion rubles in December alone could look like an extraordinary move, in reality, it no longer looks unusual as, in December 2021, the government also spent R4.8 trillion from the federal budget. In December 2020, the government spent R3.9 trillion, which also looked like an extraordinarily supporting one-off measure to tackle the negative effect of the pandemic. The government no longer publishes the breakdown of spending as it used to. It won’t be an exaggeration to assume that the bulk of extra spending in 2022 will support the country’s special military operation. Recall that the original 2022 federal budget planned expenditures at R23.7 trillion, implying that spending increased by 22.4%, i.e., well above inflation (expected around 12% this year). If to assume that non-defense expenditures could grow more or less in line with inflation, one can roughly estimate additional direct costs of the special military operation. As the latter spending is targeted and highly concentrated, the December spending spree is not going to be very inflationary. Still, it will require the monetary and fiscal authorities to conduct a “special monetary operation” to temporarily absorb the liquidity outgoing from the budget. It will be an additional argument for the CBR not to cut the key rate on December 16. So far, the federal budget was in surplus in 11M22 (R557 b...