Spending and output: how Russia will cover the record budget deficit since 2020
The Ministry of Finance has tentatively estimated the federal budget deficit for 2024 at Br3.5 trillion, or 1.7% of GDP. The shortfall was a record highsince 2020, when the gap between revenues and expenditures reached 4.1 trillion rubles. Experts interviewed by Izvestia believe that despite the fact that the authorities have to mitigate the high budget deficit by increasing the national debt for the third year in a row, the amount of borrowings is still at a safe level of 14.5% of GDP. The authorities revised the deficit forecast several times, but the final figure exceeded all estimates, but remained within the expected figures. How the budget deficit affects inflation and what will happen to the indicators this year - in the material of "Izvestia".
Federal budget in 2024 - revenues, expenditures, deficit
The federal budget in 2024 was formed with a deficit of Br3.5 trillion, or 1.7% of GDP - this is the preliminary assessment of the financial plan execution given by the Ministry of Finance. The ministry will summarize the final result in the spring, but, as a rule, the figure is almost the same as in January. The shortfall last year exceeded the figure for 2023 (3.2 trillion) and was a record since 2020, when the gap between revenues and expenditures reached 4.1 trillion.
Initially, the budget law for 2024 envisioned a much lower deficit of 1.6 trillion, or 0.9% of GDP. In spring, the authorities adjusted the main parameters of the financial plan and raised the estimate of the deficit to 2.1 trillion (1.1% of GDP). In the fall, the Ministry of Finance changed the forecast again, raising it to 3.3 trillion (1.7% of GDP). As a result, the final gap in revenues and expenditures was higher by almost 200 billion, but remained within the expected 1.7% of GDP.
- Compared to the initial parameters of the budget law, the actual expenditures turned out to be 10% higher, revenues - by 5%, and the deficit was doubled. At the same time, the deficit (1.7% of GDP) remains at a low level by international standards," said Olga Belenkaya, Head of Macroeconomic Analysis at Finam.
The growth of expenditures is due to the extraordinary need to finance closed budget items against the background of persistently high inflation, outpacing growth of imported raw materials, machinery and equipment, said Andrei Barkhota, PhD in Economics.
According to the Ministry of Finance, budget revenues last year compared to 2023 increased by 26% to 36.7 trillion. Such dynamics is observed for both oil and gas and non-oil revenues.
- Oil and gas revenues increased due to the growth in the cost of Russian oil (the average price in 2024 amounted to $68 per barrel against $63 in 2023) and the weakening of the ruble exchange rate (in 2024 the average dollar cost 92.4 rubles, and in 2023 - 84.7 rubles). The budget assumed less optimistic (for taxation of exporters) options: Urals - for $70 per barrel, and the dollar - 91.2 rubles, - explained Olga Belenkaya.
Expenditures, according to preliminary estimates last year, increased by a quarter, up to 40.2 trillion. Some of them at the end of the year were allocated to advance payment for certain expenditures in 2025. As the Finance Ministry explains, such a move will allow for more flexible money management. According to the financial plan, most of the treasury funds were spent on defense and security, social policy, national economy and achieving technological sovereignty.
How the authorities cover the budget deficit
Itis a normal practice to adjust the parameters of the treasury during the year, especially when the economy is exposed to the constant impact of external shocks, said Vladimir Yeremkin, a researcher at the laboratory of structural studies of the IPEI of the Presidential Academy. The main reasons for exceeding the planned deficit are the increase in government spending and inflation. Price growth accelerated especially in the second half of the year - up to 9.5% by the end of 2024.
Nevertheless, so far the size of the budget deficit does not cause concerns. Its relative size compared to GDP (1.7%) does not pose significant risks to the sustainability of the economy. For example, in the United States in recent years, the figure is more than 6%, emphasized Alla Chalova, Associate Professor of the Department of State and Municipal Finance at the Plekhanov Russian Economic University.
The authorities have several options on how to cover the budget shortfall. Most often they borrow money on domestic or foreign markets, take deferred reserve funds, sell state property or raise taxes and fees.
TheMinistry of Finance mainly finances the deficit through the placement of federal loan bonds (OFZ), recalled Freedom Finance Global analyst Vladimir Chernov. However, according to him, now is not the most favorable time for borrowing on the domestic market, as the rates are high due to the tight monetary policy - the interest will then have to be paid to the holders.
According to the Ministry of Finance, in the first 11 months of 2024, Russia's domestic public debt increased from Br20.8 trillion to Br21.7 trillion, that is, by 4%. External liabilities decreased from $53.3 billion to $52.1 billion - by 2%. Thus, as of December, Russia's debt in rubles amounted to almost Br27 trillion (based on the Central Bank exchange rate of 99.7 rubles per dollar on January 21).
- The Ministry of Finance considers a safe level of government debt at 20% of GDP and plans to keep it within these limits until 2030. Now it corresponds to 14.5% of GDP. Therefore, there are no risks for the economy. However, if the sanctions pressure on Russia intensifies, budget revenues will decrease, while the deficit and, accordingly, borrowings will grow," says Vladimir Chernov, analyst at Freedom Finance Global.
How much money is left in the National Welfare Fund
The Ministry of Finance has used the National Welfare Fund (NWF) within 1.3 trillion to cover the shortfall, recalled Olga Belenkaya of Finam Financial Group. This led to the reduction of its liquid part to 3.8 trillion at the beginning of 2025. However, in fact, the expenditures from the National Wealth Fund coincided in size with the additional oil and gas revenues, which were credited to the "kubyka". But in the end, the state's savings still decreased, because in addition to repaying the shortfall, the money was also used for other projects, such as infrastructure projects.
Such spending increases the risk of exhausting the liquid part of the National Wealth Fund, said Alla Chalova from Plekhanov Russian Economic University. However, according to her, the Finance Ministry forecasts that the fund will be replenished in 2025 by 1.5 trillion at the expense of additional oil and gas revenues.
- The treasury deficit is a strong pro-inflationary factor. By forming a budget with a deficit, the government seeks to stimulate the economy. At the same time, it enters the borrowing market and spends money from reserves. In the case of Russia, the government issues OFZs and uses the funds of the National Wealth Fund, which to a large extent appears to be a monetary issue. Especially considering that banks remain the main buyers of government debt," said Vladimir Yeremkin from the Presidential Academy.
Today, there are no risks for the National Wealth Fund, as the oil market is stable, the expert continued. According to him, the Russian Federation will have enough safety margin to cover the budget deficit for a long time without cutting important expenditure items.
In 2025, the treasury revenues are planned at 40.3 trillion, expenditures - 41.5 trillion, so the deficit willamount to 1.2 trillion. According to the Ministry of Finance, this year's budget will be balanced, which will help reduce the impact of government spending on inflation, strengthen the economy and financial stability of the country.
Given the continued growth of defense spending, accelerating inflation and high key expenditures, the plan for the treasury's expenditures in 2025 seems to be underestimated, said Olga Belenkaya. However, the revenue side will also increase due to higher taxes. Therefore, it is quite likely that the forecast will be revised, she summarized.
