Moscow (EFE).- The cost of a year of military campaign in Ukraine and the impact of Western sanctions, particularly against its oil sector, have undermined Russia’s public accounts to a level not seen for more than a year quarter of a century. Despite this, the country’s economy resists thanks to its still huge reserves.
In January, spending increased by 59%, while revenue to the tax coffers fell by 35% compared to the same month in 2022, generating a budget deficit of 1.76 trillion rubles (about 24,000 million dollars). , which is more than half of what was forecast for all of 2023.
The national “piggy bank”, the great lifeline
For any government these numbers would be a serious headache, but the Russian has, in addition to tax policy, another important instrument to patch up the budget: the National Welfare Fund (FBN).
It is a “piggy bank” that as of January 1 accumulated 10.8 trillion rubles (about 155.3 billion dollars), or 7.8% of GDP expected for this year.
The Central Bank of Russia (BCR) has downplayed the January figures, attributing them to “specific external factors” and predicts that the imbalance will smooth out in the coming months.
The head of Finance, Antón Siluanov, in fact maintains the deficit at 2% for this year, as provided for in the General State Budget for 2023.
To achieve this objective, the Government, among other measures, has asked large companies, except those in the gas and oil sector -already taxed with special taxes- an additional contribution to the coffers of about 300,000 million rubles (about 4 billion dollars).
Better than expected results
Despite the gale of Western sanctions against Russia for its ‘military campaign’ in Ukraine, its economy shows no signs of collapsing and is showing much better results than the country’s authorities expected.
After the beginning of the war actions, the forecasts predicted that the Russian economy would contract this year to 12%, but the decrease in GDP was 2.5%, according to preliminary data from the Ministry of Finance and the BCR.
The Russian financial system quickly adapted to restrictions such as the disconnection of banks from the SWIFT banking system and from payment systems such as VISA or Mastercard.
But the stampede of numerous large Western companies and brands from the Russian market, which manifests itself in closed stores in shopping centers, has been for ordinary citizens a demonstration of the rejection caused by the “military campaign” in Ukraine beyond the borders of Russia.
“Many of them leave our market due to pressure from their governments. Good luck. But for leaving our market they suffer huge losses,” Russian President Vladimir Putin said last year.
Hydrocarbons, the key
However, only this year will the Russian economy begin to feel the impact of the hardest hit to its finances: the ban by the G7 countries, the European Union and Australia on imports of Russian Urals oil and the imposition of a price cap on 60 dollars per barrel for its sale by sea, which came into force in December.
The Russian authorities expect that this year the oil and gas sectors will contribute to the federal budget 8 trillion rubles or about 117,000 million dollars, which constitutes 30% of the revenue item, all this calculated at an annual average price of 70 dollars per barrel of crude.
On the 10th, the BCR lowered, to 55 dollars, its forecast for the average annual price of a barrel of Urals, which is traded on world markets below the western ceiling.
To “restore market relations”, Russian Deputy Prime Minister Alexandr Novak announced that next March the country will reduce crude oil extractions by 500,000 b/d, 5-7% of its daily production.
“It is totally impossible to predict the behavior of the market: everything will depend on the dynamics of demand and other factors, including military ones,” Dmitri Aleksandrov, head of IVA Partners’ analysis and research department, told EFE.
Despite the confidence of the Finance Minister that he will be able to balance the accounts, the delayed effect of the sanctions causes doubts to some analysts.
“It is clear that the budget deficit will be much higher than expected,” Russian oil and gas sector expert Mikhail Krutikhin told EFE.
