Page 68 - RusRPTOct22

expected to grow modestly in 2024–2025, even if oil & gas earnings contract by a couple percent in both years.
Federal budget spending under the plan should grow by 17% this year. Due to high inflation, real spending growth is likely to be much more moderate.
In 2023–2025, nominal budget spending would remain roughly at the 2022 level, i.e. decrease in real terms. Under the preliminary budget proposal, the share of defence and national security as well as social expenditure in budget spending are slated to rise next year. Spending cuts are planned e.g. for categories of national economy and administration (including for example, roads and other infrastructure projects).
The plan foresees federal budget deficits running from 2022 through 2025, with annual deficits in the range of 1–2% of GDP (for a total of about RUB7.7 trillion or roughly $130bn at the current official rate).
The budget deficit would be financed with money from the oil reserve fund (National Welfare Fund) and additional borrowing from domestic markets. The liquid assets in the National Welfare Fund are presently invested in foreign currency instruments and therefore Western sanctions restrict Russia’s access to them. Instead, the finance ministry could transfer its frozen assets to the central bank in exchange for rubles.
Russia’s finance ministry returned to the bond market in September for the first time since the Ukraine war began. On September 14, the finance ministry issued RUB10bn worth of 10-year government bonds. The finance ministry baulked, however, on its planned RUB30bn bond issues on September 21 due to low demand.
While the Russian government should have little trouble financing the projected deficits over the next three years, the budget framework could be based on overly optimistic assumptions. Finance minister Siluanov already noted that this year’s budget deficit can be higher than expected. Changes to the budget proposal are possible before its final approval.
There are clear indications that the Kremlin is preparing for a protracted war: the draft budget for 2023-2025. This shows that spending on the Russian army this year will amount to almost RUB5 trillion ($86.2bn), not the RUB3.5 trillion originally planned. In subsequent years spending will also exceed forecasts.
At the same time, the Kremlin is increasing expenditures on the police, apparently fearing opposition protests, report independent journalists Farida Rustamova and Maxim Tovkaylo in a substack post.
68 RUSSIA Country Report October 2022 www.intellinews.com