Page 7 - RusRPTAug23

Rosstat published a report on the state of the Russian economy as of late May 2023. Industrial production indices suggest a significant drop in oil and gas production, albeit from a high base in early 2022 (65.6%). Coal production experienced a similar drop. Several industries that were early sufferers from Western sanctions and the breakdown of Russia’s trade links (carmaking, timber production, pharmaceuticals, and machinery) were still producing between 80% and 90% of their output in the first five months of 2022, albeit their fall seems to have stabilised somewhat.
Finance Ministry suggested a 10% cut across the so-called unprotected expenses of the budget on July 7 (anything other than social payments, education, health care, debt service and transfers to regions, and likely de facto security and military expenses) in 2024.
The Russian government cut expenses in a similar way last year and in 2020. The cut suggests that the government does not want to create novel political risks by withdrawing funding from certain programs completely, as some have suggested, nor does it think that raising taxes further (e.g. by making the surtax on the business sector—the commonly named “war tax” recently adopted by the Duma—permanent) would provide a solution.
A counter-proposal that would have included issuing more debt was reportedly opposed by the Central Bank for fear of limiting access to financing for the private sector. The fact that this is happening ahead of an election year shows how falling revenues and rapidly rising (though opaque) war-related expenses force the government to pull purse strings tighter, despite optimistic forecasts at the beginning of this year.
7 RUSSIA Country Report August 2023 www.intellinews.com