Russia increases budget expenditure by more than US$30 billion because of war

Russia has added at least RUB 3.4 trillion (US$37 billion) to its budget this year, further exacerbating inflationary risks in an overheated economy and underscoring a sharp rise in spending on Russia's war in Ukraine.

Source: Financial Times

Details: The latest official data shows that the Ministry of Finance of the Russian Federation expects spending to reach RUB 32.5 trillion (US$353.1 billion) in 2024, almost 12% more than the originally planned RUB 29.06 trillion (US$315.7 billion).

"The additional spending without a concurrent rise in expected revenues indicates how Putin’s war machine is consuming yet more funds, extending an inflationary spiral that officials admit creates macroeconomic risks for the country.

The increased spending comes despite promises from Russia’s president and other officials that the massive RUB 1.76 trillion (US$19.1 billion) deficit that the Kremlin ran in January was temporary," FT writes.

On the other hand, Russia's budget expenses in October increased by 29% annually, estimates Olga Belenkaya, the head of the macroeconomic analysis department at Moscow-based brokerage Finam.

"Taking into account how much Russia has already spent, the expenses for November and December could amount to RUB 7.3-8.2 trillion (US$79.3-89.1 billion), or about 23-25 per cent of annual expenses," Belenkaya added.

Without simultaneous revenue growth, Russia's budget deficit will rise to RUB 3 billion (US$32.5 million), or 1.8% of GDP, compared to the "one and a bit per cent" deficit that Russian Finance Minister Anton Siluanov predicted last month.

"Shifting expenditures to the end of the year is a standard curse of the Russian budget system," said Alexandra Prokopenko, a non-resident fellow at Carnegie Russia Eurasia, adding that this year the finance ministry has sought to solve that problem by moving most of the spending to the first quarter of 2023. 

Some of the additional funding could be used in connection with the expected announcement that Putin will run for another term as president, most likely extending his already 23-year reign until at least 2030, Prokopenko said.

"People need to be paid so they don’t go into the new year with empty pockets," she added.

The huge increase in spending deepened Russia's dependence on imports, fueled inflation and contributed to the weakening of the ruble. They also exposed the differences between the Ministry of Finance of the Russian Federation and the Central Bank of the Russian Federation, FT summarises.

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