Russian macro: Evolving foreign trade payments trim budget revenues

RUSSIA ECONOMICS - Report 12 May 2025 by Evgeny Gavrilenkov

A few days ago, the Russian Ministry of Finance reported that 4M25 federal budget revenues reached R12.274 trln, i.e., up by 5.0% y-o-y. The figure appears unimpressive amid over 10% y-o-y inflation. Oil-and-gas (O&G) revenues shrank by 10.3% y-o-y to a mere R3.727. Non-O&G revenues grew by 13.5% y-o-y and reached R8.546 trln. Federal budget expenditures increased by 20.8% y-o-y over the same period and jumped to R15.499 trln. As a result, the 4M25 budget deficit widened to R3.225 trln. Meanwhile, the original version of the 2025 federal budget assumed total revenues could reach R40.296 trln, with O&G and non-O&G revenues climbing to R10.936 trln and R29.360 trln, respectively. The government targeted expenditures at R41.470 trln and a deficit of R1.173 trln. As reality turned out differently from what the government anticipated when it drafted the budget last year (due to a peculiar combination of considerably lower oil prices and a much stronger ruble), the government had to react. Indeed, this unusual combination might not be short lived as sanctions and a wider use of national currencies in foreign trade has dramatically reduced the demand for dollars in Russia. It looks as though this transformation was partially behind the ruble’s recent appreciation.

The proposed amendments to the 2025 federal budget assume total revenues could reach only R38.506 trln as O&G revenues could climb to just R8.317 trln. The government expects non-O&G revenues to be somewhat higher than initially planned (R30.189 trln) due to additional various non-tax inflows. The Ministry also proposed raising federal budget expenditures just slightly, to R42.299 trln. The new deficit widens to R3.793 trln, which is not too high for an expected GDP of about R230 trln.

The main conclusion from recent developments is that in the years to come, budgetary policy will be less generous, and the enormous upward amendments seen in recent years will be a thing of the past. If so, inflation and interest rates will also start coming down, which may help the government to borrow locally as the budget deficit will be higher.

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