Federal budget deficit could exceed the amended target amid disinflation and excessively strong ruble

RUSSIA ECONOMICS - In Brief 08 Jul 2025 by Evgeny Gavrilenkov
The recent thinking of the Russian government suggests the 2025 federal budget deficit of R3.8 trln, which is wider than the initial target of R1.2 trln. The reason behind this change is shrinking oil-and-gas (O&G) revenues as the ruble remains too strong (at about USD/RUB 79) for some time, with no clear indications of its depreciation yet in sight. Even though the Ministry of Finance reported that in 1H25 O&G revenues climbed 56.9% of the yearly target, this result stemmed from a strong revenue flow earlier this year, as in May and June, a too strong ruble amid a fallen Urals blend price was a game changer. Unless the ruble weakens considerably, the O&G revenues could remain poor in 2H25. In 1H25, total federal budget revenues accounted for 45.7% of the annual amended plan, and the non-O&G revenues reached 42.6% of the 2025 plan. The amended plan assumed fewer revenues this year relative to the initial budget approved at the end of 2024. In 1H25, the government financed 50.3% of the upwardly amended yearly expenditures. Ongoing disinflation and unimpressive economic growth will likely trim the non-O&G revenue flow for the rest of the year. These revenues could slightly exceed R29.1 trln by the end of the year, while the government targets R30.2 trln. Our preliminary simulations show that if the current combination of the Urals price and the USD/RUB holds for the rest of the year, O&G revenues could reach R7.9 trln or slightly more this year (in 1H25 they amounted to R4.7 trln and the current target for 2025 stands at R8.3 trln). In this extreme scenario, total revenues may fall short by about R1.5 trln, implying a wider deficit. The amended deficit stands at R3.8 trl...

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