The 11M23 federal budget surplus narrows before the December spending spree

RUSSIA ECONOMICS - In Brief 11 Dec 2023 by Evgeny Gavrilenkov

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The Ministry of Finance reported that the 11M23 federal budget deficit narrowed to R878 bn from R1.235 trln in 10M23. The deficit’s peak was recorded in 4M23, at R3.049 trln. As monthly spending moderated since then, while revenue growth accumulated strength since May, the monthly budget balance turned into a surplus (except for July). The revenue flow remained relatively stable—both in the case of the oil-and-gas taxes and the non-oil-and-gas ones. Moreover, in recent months oil-and-gas revenues increased, as the Urals to Brent discount narrowed while the ruble weakened. Its weakening lasted from the start of the year until mid-October. Given that the trend reversed, and the ruble appreciated amid some tightening of partial capital controls, while the oil price decreased, one can expect relatively moderate oil-and-gas revenues in December. Overall, one should expect an explosive widening of the budget deficit in December as in 11M23, the government financed 82.6% of the amended expenditures, which were raised to over R32.5 trln. It goes without saying that revenues cannot jump miraculously in December – even though they reached 99.4% of the amended revenue target in 11M23 and will be well above the target in 2023, as a whole. All in all the budget deficit is supposed to explode in December, which is not unusual in Russia. Hence, inflation will remain elevated in the next few months (it reached 1.11% m-o-m in November), and the economy is due to stay overheated. In the forthcoming economic report, we’ll provide more color on these issues – particularly on the 2024 revenue dilemma, which can be resolved if the ruble weakens quite visibly and helps secure financing of ex...