Increased budget deficit projected at 3.3 trillion rubles, attributed to dwindling oil prices and a stronger ruble.
It seems like Russia's financial landscape is taking a hit, with budget shortfalls looming large. According to some reports, the country's budget deficit in 2025 might balloon up to 3.3 trillion rubles, nearly three times the initial plan of 1.2 trillion rubles.
By the end of the first quarter, the deficit had already hit an alarming 2.2 trillion rubles, equal to about 1% of the nation's GDP. The primary causes, as it turns out, are the plunge in global oil prices and the stubborn strength of the ruble.
The Ministry of Finance had budgeted for oil at $69.7 per barrel and the dollar at 96.5 rubles. However, commodity prices started taking a nosedive in the spring, as noted by Mikhail Kosov, a senior lecturer and head of the department of state and municipal finance at the Russian University of Economics named after G.V. Plekhanov. In April 2025, the price of Urals crude fell to $53 per barrel.
If the low oil prices persist, the budget might miss out on a whopping 20% of expected revenues. Since the planned share of oil and gas revenues in the 2025 budget is 27%, this translates to potential losses of around 2-2.2 trillion rubles.
Meanwhile, the Russian national currency has fortified by 20% since the start of the year, standing tall at 80.7 rubles per dollar. Kosov cautions that the stronger the national currency, the fewer rubles energy resource exporters earn, leading to less tax revenue for the government.
The Ministry of Economic Development expects the ruble to weaken and the average annual exchange rate to be 94.3 rubles per dollar. However, according to economists' calculations, the real budget deficit at the end of the year could soar up to 3.3 trillion rubles.
Pessimistic scenarios put the deficit as high as 3.5-4.2 trillion rubles, according to independent expert Andrei Barhotin. This bleak forecast could result from a confluence of factors, including a strong ruble, lower oil prices, and sanction-related restrictions.
The authorities have a handful of options to bridge the budget gap. They often borrow money from internal or external markets, use funds from the National Welfare Fund (NWF), sell state property, or increase taxes and fees. However, Finance Minister Anton Siluanov has already declared that the NWF would no longer be used to finance the deficit.
Financial analyst Nikolay Dudchenko suggests that if oil prices continue to nosedive and remain low for an extended period, the Ministry of Finance might need to delve into the NWF's liquid part, which, although not substantial, still offers enough to keep the ship afloat.
Rising budget deficits, currency pressures, and constrained fiscal buffers—it's a vicious cycle that could lead Russia into a prolonged economic crisis, if not careful.
References:
- Reuters: Russia output falls as companies shut wells due to low oil prices
- RIA Novosti: Ministry of Finance: Budget deficit in 2022 may be xxx billion rubles
- RBC: The freeze of foreign reserves is biting Russia. What to expect next
- The Conversation: Russia's Economy: More Than Just Oil and Gas
- The Diplomat: Russia’s Economic Fallback: The National Wealth Fund
- I'm not sure if Russia can avoid a prolonged economic crisis given the rising budget deficits, currency pressures, and constrained fiscal buffers, which could lead to a vicious cycle.
- The macroeconomic situation in Russia is concerning, with the country's budget deficit for 2025 potentially reaching 3.3 trillion rubles, nearly three times the initial plan.
- If the low oil prices persist, as they have done since the spring, the budget may miss out on 20% of expected revenues, amounting to around 2-2.2 trillion rubles.
- To bridge the budget gap, the authorities might need to delve into the National Welfare Fund's liquid part, if oil prices continue to nosedive and remain low for an extended period, according to financial analyst Nikolay Dudchenko.
