Page 6 - RusRPTAug23

(some of which are connected to the war). Real incomes are up in regions that are home to military factories and where reports suggest there are large numbers of contract soldiers (for example, Buryatia, the Jewish Autonomous Okrug and Chechnya).
Public social spending will continue to support the economy – at least until the end of the 2024 election cycle. However, there is one important factor that could halt the slide of the economy into recession – this is the government’s expanded social spending. In their most recent communications on economic policy, President Putin and his Cabinet officials said that in their growth policies, they want to prioritize support for domestic demand. This means that government will continue to boost its spending on public wages and pensions: it already announced that in October 2023 the salaries of the military and security personnel will be increased followed by a similar move in January 2024 on the wages of other public employees. As the latest data suggests, real wages have already seen a massive rise of over 10% Y/y in April and the trend will likely continue in 2H23 and 1Q24, especially if one takes into account the start of a new political cycle in Russia (next presidential elections in Russia should take place in March 2024).
The nation’s finances have inevitably been influenced by the war and the upcoming elections. Despite problems at the start of the year, things have improved in recent months. The budget deficit fell from its April peak of 3.4 trillion rubles to 2.6 trillion at the end of June, after the budget went back into profit in May.
In addition, economic growth has led to a rise in non-energy taxation revenue and spending fell.
Finance Minister Anton Siluanov has promised the annual budget deficit will not exceed 2.5% of GDP, but there is still a high risk that it will increase above its current level.
Without spending cuts, the government has a range of measures to combat the deficit. First, it can increase taxes in 2024. Borrowing could also plug the deficit. There is liquidity in the banking sector available.
The Kremlin could also increase withdrawals from the National Welfare Fund. Over the past six months, doing this has helped plug a 507bn ruble hole in the budget, the Finance Ministry reported. In total, the fund has 6.8 trillion rubles of liquid assets left, specifically gold and yuan. By the end of next year, 2.3 trillion rubles should remain (according to the Finance Ministry).
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.
6 RUSSIA Country Report August 2023 www.intellinews.com