“A deficit of 10 trillion rubles is not Russia’s headache”: an economist on the real threats to Russia

22 January 13:50
OPINION

Russia ended 2024 with a record budget deficit. This was reported by the Ministry of Finance of the Russian Federation, according to Komersant ukrainskyi.

According to preliminary estimates of officials, budget expenditures amounted to 40.2 trillion rubles. This is 800 billion rubles more than was expected when the law on the budget for 2025-2027 was adopted and 24% more than a year earlier.

Non-oil and gas budget revenues, including the “largest tax sources (turnover taxes)”, were significantly higher than expected: 25.6 trillion rubles – 26% more than in 2023. The budget rule allows them to be spent, which the Ministry of Finance did.

Oil and gas revenues, however, were a bit of a letdown, although they also grew by 26%: they amounted to 11.1 trillion rubles, but this is 0.2 trillion less than the Ministry of Finance expected. The deficit also increased by the same amount: it amounted to 3.5 trillion rubles instead of 3.3 trillion. This is a record deficit: in 2022 and 2023, the budget gap was 3.3 and 3.2 trillion, respectively.

During the three years of the war, the budget deficit amounted to 10 trillion rubles. At the same time, it has become smaller in relative terms: 1.7% of GDP in 2024 compared to 2.1% and 1.9% in the two previous years.

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“There are things worse than a budget deficit”

[Kommersant] asked economic expert Oleg Pendzin how telling these figures are and what they really mean for the Russian economy.

According to the economist, such a budget deficit was quite predictable and did not pose any particular risks to the Russian state. They were ready for it. Instead, he focuses on the inflation of the Russian currency, which, in his opinion, is a much more dangerous factor for the stability of the Russian economy.

“The rampant inflation today is not confirmed by Russian statistics, but it exists in reality. And it is a much greater danger to their economy. Hence, another huge danger is the extremely high refinancing rate of the Central Bank of Russia, which cannot cope with those inflationary processes,”

– the expert noted.

As wrote, the interest rate in Russia is currently 21%, and the Russian elite is increasingly dissatisfied with it. If at the beginning of the full-scale war with Ukraine, the head of the Russian Central Bank, Elvira Nabiullina, was praised as the savior of the Russian economy under sanctions, now she is increasingly accused of destroying the economy with record high interest rates.

On the other hand, Oleg Pendzin reminds us that the Russian economy still depends on oil and gas revenues and the cost of energy on the world market. This is where U.S. President Donald Trump has leverage over the Russian economy.

“If Trump manages to steer this situation in the right direction, it will be very difficult for the Russian economy. He has already made a statement about the difficult state of the Russian economy and the possibility of its sharp deterioration. This directly depends on the cost of energy on the world market. Therefore, these processes today should be perceived exclusively in terms of the upcoming negotiations between Trump and Putin on the conditions for ending the war,”

– oleg Pendzin summarized.

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Остафійчук Ярослав
Editor