Like in the US? Russia triples budget deficit - what does this mean for us

Want It Like the US? Russia Triples Budget Deficit — What Does This Mean for Us

The Russian State Duma will consider amendments that will triple the federal budget deficit to 3.8 trillion rubles or 1.71 trillion rubles of GDP. Experts are optimistic, saying that nothing will change in the near future, but the government is also planning autumn amendments.

Why are the authorities rewriting the budget?

The main reason for the adjustment was the worsening forecast for the price of oil and the reduction in related non-oil and gas revenues, Finance Minister Anton Siluanov said. In addition, due to higher inflation and the key rate, preferential mortgages and indexation of payments became more expensive for the state.

According to the plan, total budget revenues in 2025 will decrease by 1.8 trillion rubles, to 38.5 trillion. Expenditures will increase by 829 billion rubles, to 42.3 trillion. Accordingly, the deficit planned for 2025 in the amount of 1.173 trillion rubles will increase to 3.792 trillion - from 0.5 to 1.7% of GDP. Russia executed the budget with the same deficit last year.

The draft law on changes to the budget was submitted to the State Duma on May 12. It was reviewed by the relevant committee, and is now being prepared for the first reading. There is no doubt that it will be adopted quickly, since such government initiatives usually do not encounter resistance from legislators.

How do they plan to cover the deficit?

It is assumed that the increase in expenditure by 829 billion will be covered by non-oil and gas revenues, which will grow by about the same amount. This became possible, among other things, thanks to the increase in taxes from 2025.

The loss of oil and gas revenues due to cheap oil and a strong ruble is planned to be compensated for with the help of the National Welfare Fund (NWF). 447 billion rubles will be spent from it, although it was initially assumed that the "piggy bank" would not be touched, and by the end of the year it will even be replenished by 1.8 trillion rubles.

Will this affect inflation and the key rate?

When making decisions on the key rate, the Central Bank proceeds from the normalization of budget policy in the current year. It should have a disinflationary effect, i.e. contribute to a slowdown in price growth.

However, the regulator always warns: “Changing the parameters of the budget policy may require adjusting the monetary policy being pursued.” We saw how this works in 2024 (and not only), when a sharp increase in budget expenditures required raising the “key” and maintaining high rates for a longer period.

Experts agree that the spring adjustment will not provoke an increase in inflation and will not lead to such consequences.

— The deficit growth is impressive only in numbers — 3.23 times, but it is nominal, not structural: arrears will be covered by reserve funds, growth of non-oil and gas revenues and loans from the Ministry of Finance on the OFZ market. Therefore, a jump in inflation due to the budget deficit expansion factor is not expected, — Mikhail Zeltser, an expert on the stock market at BCS World of Investments, told Fontanka.

The increase in the deficit does not imply an increase in borrowing or additional spending of the National Welfare Fund, other than compensating for the missing oil and gas revenues.

“That is, in principle, the changes should be neutral in terms of their impact on inflation and monetary policy,” says Olga Belenkaya, head of the macroeconomic analysis department at FG Finam.

But that's not all

The nuance is that the budget will have to be amended again in the fall. The Ministry of Finance announced the second block of amendments. For now, there is uncertainty in a number of aspects:

• Current parameters make a strong ruble unattainable, and the budget, let us recall, was drawn up based on an average annual rate of 94.3 rubles per dollar. If the dollar lingers at 79–80 rubles or continues to fall, the treasury will lose even more oil and gas revenues.
• It is unclear whether the Ministry of Economic Development's forecast for GDP growth of 2.5% will be achieved. The Central Bank predicts economic growth of 1–2% for 2025, while the analysts it surveyed predict 1.6%.
• The deficit may also exceed the planned 1.7% of GDP due to additional expenditures. Last year, the 2024 budget was revised twice, and both times in the direction of increasing expenditures and the deficit.

— We believe that even now the increase in expenditure may not be final: the new value assumes growth of only 5.2% to the 2024 level, below the forecast inflation of 7.6%. It seems that it will be difficult for the Ministry of Finance to keep the growth of expenditure within such limits, — says Olga Belenkaya.

She notes that for January-April 2025 alone, the budget deficit was provisionally 3.225 trillion rubles, with the new annual plan being 3.79 trillion.

However, it is normal for the state to spend a lot at the beginning of the year, reminds leading analyst of Tsifra Broker Natalia Pyryeva.

— In this case, it is important to keep in mind that a significant increase in budget expenditures was observed at the beginning of the year and acts as an advance period for the following months of the year. That is, these are not expenses here and now, and part of these funds remains in banks, so the very fact of a surge in expenditures will be smoothed out over time, which does not have an excessive impact on price growth, but rather supports economic activity, — she explains.

What will drive up prices?

Most analysts expect that oil will become more expensive and the ruble will become weaker by the end of the year. But if this does not happen, we may expect, for example, additional indexations (given that housing and communal services tariffs will be indexed by 11.9% from July 1) or other measures by which the government will try to make up for what it did not receive.

“As a result, this may force the Bank of Russia to raise the rate or continue to keep it at a high level for a longer period of time than previously assumed,” adds Natalia Pyryeva.

Possible way out

All things being equal, this would help inflation to decrease and the ruble to weaken, which is good for the budget. However, the Finance Ministry does not plan to change the rules of the game.

Is the deficit so scary?

Almost all major countries in the world are running budget deficits. As of 2024, only the UAE, Kuwait, Denmark, Ireland, Portugal, Switzerland, Cyprus, Greece and Luxembourg had no deficits.

Belarus executed its budget in a balanced manner. Revenues and expenses coincided, creating neither a deficit nor a surplus.

The remaining countries recorded a deficit, in most cases even more significant than Russia’s (1.7% GDP): China — 7,