Russia’s Post-Election Spending Sends Budget Into Deep Deficit

(Bloomberg) -- The Kremlin opened up the fiscal taps after President Vladimir Putin’s reelection in March, putting the budget back into deep deficit despite a surge in oil revenues.

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The shortfall was 1.5 trillion rubles ($16 billion) in the year to date through April, more than doubling from the previous month, the Finance Ministry said Monday. While it didn’t break out the monthly totals, Bloomberg calculations show the budget swung into a deficit of 877 billion rubles in April after a surplus in March.

Spending is shifting into a high gear as the war against Ukraine absorbs ever more funding.

Expenditure in April was up by a quarter compared with the same period last year, according to Bloomberg calculations, and reached the highest monthly level this year. Russia spent 128 billion rubles per day in April — versus 102 billion rubles in March — a sharp increase that the Finance Ministry attributes to large advance payments.

The largesse offset April’s surge in oil revenue that more than doubled from a year earlier. Despite international sanctions intended to limit the flow of money to fuel the war in Ukraine, Russia has managed to bypass or at least blunt the restrictions.

Russia has run a budget deficit since the end of 2022, a reflection of the steep costs of Putin’s invasion of Ukraine in February of that year.

The government is pumping resources into industries crucial for the war effort, ensuring double-digit growth in sectors that churn out goods used by the military. Russia targets the budget deficit at 0.9% of gross domestic product this year.

The latest increase in outlays may in part be seasonal, said Dmitry Polevoy, investment director at the Moscow-based Astra Asset Management. Since the coronavirus pandemic four years ago, expenditure in April accounted for 9% to 10% of annual spending, he estimates.

For the first four months of the year, total revenues increased by 50% as a result of higher crude exports and an increase in non-oil income thanks to a pickup in the economy.

“Oil and gas revenues are fine, non-oil revenues are also fine amid such economic growth, so the current budget execution does not raise any particular questions,” Polevoy said.

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