Russia's budget deficit grows amidst dwindling energy revenues and heightened military spending
5:51 PM EST, January 11, 2024
The Russian Ministry of Finance data indicates that Russia's budget deficit amounts to 3.2 trillion rubles, approximately 40.6 billion US dollars. The data shows an increase of 300 billion rubles, exceeding the Kremlin's initial prediction. So, what triggered such a substantial discrepancy?
Sanctions deflate prices and the Kremlin's budget revenue
Bloomberg concludes that the primary reason for the difference is an 11 percent increase in expenditures and a 24 percent decrease in budget revenue from oil and gas taxes. Notwithstanding this decline, these sources still comprise one-third of the Kremlin's revenue.
Oil revenue also fell due to a 17 percent downturn in oil prices in 2023. Western sanctions, applied in response to Russia's invasion of Ukraine, had a significant influence as well.
Revenue from the export of Russian gas also diminished. The Kremlin's decision to halt most of the supply to Europe in 2023 led to a 65 percent decline in budget revenue from export duties on gas, equivalent to roughly 6.9 billion US dollars, Bloomberg reports. It's worth noting that Russia only delivers gas via one pipeline in Ukraine – TurkStream.
Moreover, the International Energy Agency assesses that domestic pipeline gas exports to the European Union fell by 65 percent in 2023. The mild winter weather and, thus, the reduced demand played a part in this drop.
Bloomberg suggests that the extensive deficit was influenced by reduced oil and gas export revenue and a direct subsidy to the oil industry last year, which cost approximately 34.7 billion US dollars, further shrinking income. At the same time, healthcare and education expenses cost the Kremlin an estimated 37 billion US dollars.
In the meantime, Russia is planning a 70 percent increase in military spending for 2024. Additionally, social expenses in preparation for the presidential elections that Vladimir Putin is planning are also anticipated. According to Bloomberg's report, these actions, compounded with declining gas and oil revenues, heavily strain the Kremlin's budget.
