Page 66 - Russia OUTLOOK 2023

as the planned deficit for the 2023 budget.

Taking into account the ongoing war in Ukraine, it will be difficult for the
government to reduce spending in 2023, which means that it will have to
increase the revenue side. In 2022, this was done, among other things, by
withdrawing dividend income from hundreds of thousands of Gazprom
shareholders. In 2023, the budget is also planned to be replenished by raising
the tax burden for large companies.

The price of Urals crude – Russia’s main oil blend – fell to $55/bbl in
December from $75/bbl in August and $100/bbl in March. Russia needs the
cost of oil to be around $110 per barrel to balance the budget. This has
reduced a key source of income for Russia’s economy but there is often a lot
of confusion about whether to focus on the impact of this on the budget or
current account positions.

In December the Russian budget was still in surplus (but only due to massive
one-off tax payments by Gazprom) and is expected to run a 2%-3% deficit in
2023. The current account was in a massive surplus of $270bn, although that
could be reduced to some $100bn in 2023, depending on the efficacy of oil
sanctions. Nevertheless, even $100bn is still close to pre-war all-time highs.
However, the CBR projects a surplus of just $15bn in 2025, equivalent to 0.8%
of GDP and the smallest since 1998.

“The distinction between the two is important. We estimate that Russia needs
an oil price of about $110/bbl to balance the budget, but an oil price as low as
$25/bbl to balance the current account. This gap reflects the fact that while
higher government expenditure and the strong ruble have pushed the budget
into a deficit (of 1% of GDP), depressed imports due to sanctions and high oil
and gas prices have generated a massive private sector surplus and boosted
the current account balance (to +13% of GDP),” says Oxford Economics.

“The budget will clearly stay in a large deficit with low oil prices, but the budget

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