Russian macro: Budget deficit to shrink in 2024 and beyond amid higher revenues, moderate spending
In recent weeks, Russian government officials have made several statements that sounded quite optimistic. Strangely enough, the authorities expressed some concerns about the weakened ruble and started talking about some potential administrative measures to “stabilize” the currency. However, such ideas were opposed by the CBR. At the same time, an appetite to accumulate more revenues in the federal budget that originate from a weaker ruble in various business segments also increased. However, nothing is set in stone yet as such debates appear strange—on one hand, the weaker ruble benefits the economy and the budget, while, on the other hand, some government officials seemingly want the ruble to be stronger. The 2023 federal budget execution numbers don’t look bad, and oil-and gas revenues are likely to soar in September and onwards amid the weaker ruble and the narrowed Urals discount to Brent. In recent weeks, Urals traded close to $80/bbl, and thus the ruble oil price moved to around R7,000/bbl.
It appears that the revenues and expenditures of the federal budget will significantly decline relative to GDP in 2023 as GDP may approach R160 trln vs R153.4 trln in 2022. In 2022, federal budget expenditures reached 20.2% of GDP while in 2023 they won’t exceed 18.8% of GDP. Similarly, in 2023 revenues are expected to fall from 18.1% of GDP to below 17.1% of GDP. Therefore, targeting much higher nominal revenues and expenditures in 2024 amid a relatively small deficit the government will be able to finance expenditures even in the case of some unpleasant hypothetical shocks on the revenue side—via domestic borrowing or from its reserves.
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