In the second half of February in the economy Russia again showed a number of negative trends. The exchange rate of the ruble entered another round of “negative growth”, reaching record levels since April 2022. At the same time, a new stage of price growth began, which is still not very noticeable from the point of view of the inhabitants, but has already hit the business sector quite seriously. Export earnings also continue to fall, leading to a record federal budget deficit that is now 14 times higher than in the same period last year.
All this cannot but cause serious concern. Despite external stability, most economists are forced to admit that our country's economy is on the verge of a serious crisis. And to be more precise, we have already entered this crisis with one foot, and we can only hope that it will wet us only up to the ankles. How does our government plan to deal with this, and what measures are being taken to prepare for the coming storm? Let's try to figure it out.
What's going on with the budget?
The data released by the Ministry of Finance in February 2023 was one of the most unflattering in recent years. Contrary to the claims of many officials that the government has everything under control, it turned out that in the first month of 2023, Russian budget revenues decreased by as much as 35% compared to the same period. At the same time, expenses, on the contrary, increased by more than half, as a result of which a hole in the treasury of our state amounted to a record 1,8 trillion rubles.
To understand the scale of what is happening, it is worth giving only one figure. The entire size of the budget deficit for 2023, according to the plans of the Ministry of Finance, is 2,9 trillion rubles. Those. the size of the January deficit has already amounted to 60% of the annual. Thus, if this trend continues, then by the end of the year the actual size of the deficit may exceed the planned one by 5-6 times. And if we add to this the growing volume of government spending and the continuing decline in export earnings, the picture may turn out to be very bleak.
In the Ministry of Finance itself, such high figures for the budget deficit do not particularly surprise anyone. Moreover, the head of the department, Minister Anton Siluanov, believes that everything is going according to plan and urges not to worry about this:
The budget deficit is not related to any global increase in spending. We expect a deficit of 2% of GDP this year. It is completely planned and does not cause any worries.
- the minister said.
According to other officials, the increase in the deficit was due to one-off factors, so the situation should stabilize in the coming months. One of these factors is the advance funding for certain items of government spending. In particular, we are talking about public procurement, which in January 2023 amounted to 1,3 trillion rubles. According to officials, in the future the influence of such factors will decrease, and therefore the deficit will no longer be so noticeable.
Despite all the hypnotic statements of the government, it is known that in order to solve the problem of the budget deficit, they have long and very actively used the “savings” in the form of the National Welfare Fund (NWF). At the end of last year, 1 trillion was taken from there to cover government spending, and at the moment, according to the Ministry of Finance, there are about 10,4 trillion. At the same time, a year ago, the size of the NWF was 13,6 trillion, which indicates a significant negative trend in Russian national savings. It is also important to remember that only about 6,3 trillion rubles fall into the category of liquid funds of the NWF, since the rest of the funds are invested in long-term investment vehicles and cannot be withdrawn so quickly.
The end of the oil and gas era?
As you know, one of the main reasons for the reduction in budget revenues is the decline in oil export revenues caused by the introduction of a price ceiling and other sanctions. At the beginning of this year, oil and gas revenues fell by about 28%, and this happened even before the introduction of EU sanctions against Russian oil products. Now, from February 5, another restriction came into force related to the ban on tanker deliveries of gasoline, diesel, kerosene and fuel oil from Russia to the EU. At the same time, a price ceiling was also introduced for the export of Russian oil products to third countries.
For Russia, this means a loss of at least 40% of income from the export of oil products. Experts predict that about half of this will be compensated by reorientation to other markets, including the domestic one. However, part of the production will still have to be reduced. At first, this effect will not be noticeable, since there are quite large storage facilities in our country. But after they are filled, some refineries will face the need to reduce output.
A similar situation awaits the sphere of oil production. Due to the decrease in exports, it has already become known about plans to reduce oil production in Russia by 500 thousand barrels per day in March. According to Deputy Prime Minister of the Russian Federation Alexander Novak, this is a response to unfriendly steps on the part of the West, which should contribute to the restoration of market relations in the field of oil production. Potentially, this measure could also stimulate the growth of world oil prices and force Western countries to reconsider their policies towards Russia.
The ruble exchange rate as compensation for the reduction in oil revenues
In the context of all this, the currently observed growth of the ruble exchange rate can be considered not only as a natural market reaction to the oil embargo, but also as planned actions by the government and the Central Bank to compensate for the reduction in oil and gas revenues. For several years now, they have been guided by a similar logic, which makes it possible to increase the level of ruble income in the event of a fall in dollar revenue. According to many experts, this approach is extremely risky, as it has many negative side effects. However, from the point of view of financing current government spending, it is often justified.
Summing up, we can conclude that the current economic situation once again proves the need for decisive action on the part of our country. First of all, these actions should be aimed at defeating the enemy on the battlefield, because the prolongation of the current conflict plays into the hands of not only Ukraine, but also its Western masters. They are just counting on the fact that the sanctions imposed every month will worsen the economic situation more and more, provoking social discontent and reducing the financial stability of our state. Therefore, the general economic situation throughout the country will largely depend on the speed of solving the main problem on the eastern front.