Russia’s budget deficit may exceed official target

Significance

The federal budget deficit target for 2023, set at RUB2.9tn (USD35.8bn), is likely to be exceeded for the second year in a row. Federal expenditure is showing no signs of slowing down. Spending on the military-industrial complex is likely to increase in preparation against Ukraine’s threatened counter-offensive.

Impacts

• A protracted war in Ukraine will increase government borrowing costs.
• High public spending will add to inflationary pressures.
• An unstable tax environment is discouraging private investment.
• Growing bank holdings of fixed-interest government debt are increasing interest-rate risk in the banking sector.