Page 54 - RusRPTAug23

spend every last cent from the fund.
Western sanctions mean the Russian economy is securely insulated from global shocks. If there is no sudden fall in oil prices, or anything similarly catastrophic, there is enough money to maintain current spending for about two years.
Discussions about whether to reduce federal expenditures, raise taxes, or increase borrowing in order to stabilise Russia’s fiscal situation seem to have been cut short, at least for now.
In the week of July 17, the government reportedly agreed to execute budget sequestration affecting 10% of so-called non-protected expenditures in 2024, amounting to an estimated 450bn rubles ($5bn).
The fact that this will happen in an election year is notable, even if the reductions do not affect social expenditures. It suggests both that the government believes that Russia’s fiscal situation will further worsen this year (in spite of optimistic statements about oil and gas-related incomes) and that the other ways of covering the growing deficit are more undesirable or risky. For example, printing rubles or using reserves accumulated in the National Welfare Fund come with significant inflationary risks, to which the authorities are likely to be more sensitive following the recent weakening of the ruble. Sequestration, however, will mean that the federal budget will likely further cut money allocated to infrastructure development and National Projects.
The Central Bank also warned of inflationary risks in relation to increased regional spending in its latest “Regional Economy” report issued last week. In the first five months of the year, regional expenditures grew by 16%—mostly on infrastructure development, supporting suppliers of state-funded projects, and social expenditures—while revenues rose by only 7%—mostly due to higher federal transfers. Since regional spending is expected to stay high in the second half of the year, it remains to be seen how much more of a burden the provision of federal transfers and treasury loans will put on the federal budget. The report also underlines that state-funded and state-supported projects have had a significant role in Russia’s economic recovery over the past months, and that sectors such as coal mining and metallurgy continue to suffer from transit bottlenecks and a lack of access to technology and equipment, respectively.
54 RUSSIA Country Report August 2023 www.intellinews.com