Russia’s federal budget deficit for January-July 2024 reached rose to RUB1.36 trillion ($15.75bn), but oil and gas revenues surged 62% in the same period, according to a preliminary estimate of the Ministry of Finance on August 7.

Russia’s budget deficit increased by RUB431 month on month on the back of the present heavy spending on the war. (chart) Russia’s forces are in active mode and pressing the Armed Forces of Ukraine (AFU) along the whole front, having taken back several hundred square kilometres of territory in recent months, according to Institute for the Study of War (ISW).

Nevertheless, at home the economy is booming and on track to grow by more than 3% this year, after expanding by 3.6% last year. In particular real disposable incomes were up 9.6% in July – the highest in a decade. That was reflected in the tax returns, where personal income tax receipts surged by 34%, VAT by 23%, and the revenue indicator of cash registers for January to June 2024 rose by 23.7%, or 14% excluding inflation as Russians went shopping.

All-in-all, budget revenues for the reporting period amounted to RUB19.747 trillion ($228.73bn), which is 35.9% more than a year earlier, while expenses rose by a more modest 23.3% and reached RUB21.109 trillion ($244.67bn). 

Russia ran a modest budget deficit of around RUB1 trillion in the first quarter, but month-on-month it ran a surplus budget in the second quarter. The July result puts the budget back into deficit, but Ministry of Finance (MinFin) is sticking to its full year deficit target of 0.8% of GDP – well down on last year’s 1.9%. And MinFin is expecting the budget in 2025 to balanced.

Oil and gas remains the biggest contributor to the federal budget adding RUB6.8 trillion ($81.22bn) of revenues for January-July 2024, which is 61.6% more than the figure for the same period last year, mainly due to the increase in the price of Russian oil, the Ministry of Finance said.

"At the same time, oil and gas revenues were at a level exceeding their base volume. In accordance with the parameters of the forecast of socio-economic development in the coming months, a steady excess of oil and gas revenues over their base level is also expected," the ministry said, reports TASS.

Meanwhile, non-oil and gas revenues of the Russian budget for January-July increased by 25.5% y/y to RUB12.97 trillion ($150.37bn).

Apart from the war spending, expenditures from the federal budget for the implementation of National Projects 2.1 programme that is supposed to rejuvenate Russia’s economy, are ongoing. Spending on the National Projects amounted to RUB1.845 trillion ($21.4bn) or 58.3% of this year’s target spending as of August 1, MinFin said.

Russia's rainy day reserve fund also remains stable, despite the increase in the deficit. The National Wealth Fund held RUB12.3 trillion ($142.58bn) or 6.4% of GDP as of August 1, down by RUB300bn from a month earlier.

But at the same time, the volume of liquid assets of the Fund as of August 1 increased to RUB4.665 trillion ($54.01bn), up by RUB61.8bn ($715.58mn) in comparison with the previous month.

The fund is used to top up the budget in deficit years and since the start of the war in Ukraine, MinFin has spent about half of the liquid part of the fund, but MinFin has been careful not burn through this reserve and has sought other sources of income to cover the deficit. the major policy shift has been to introduce progressive income taxes on the Russian population for the first time since Russian President Vladimir Putin took office in 2000.

Spending on the National Projects has been increased as Putin is trying to avoid ignoring investment into the civil economy, after he put Russia on a war footing following the invasion of Ukraine over two years ago and told his top military bosses they need to focus on “both guns and butter” in a speech in May.

The following National Projects taking the lead in terms of utilizing their allotted expenditures include: culture (70.3%), demography (69.7%), healthcare (67.1%) and science and universities (62.7%)

According to the ministry’s data, performance is over 50% for labour productivity (59.3%), education (57.8%), housing and urban environment (55.9%), tourism and hospitality industry (53.6%), international cooperation and export (52.1%) and safe and high-quality roads (51.9%).

Progressing less quick include the programmes for: small and medium-size business and individual entrepreneurial initiative support (49.2%), digital economy of the Russian Federation (46.5%), ecology (45.1%), unmanned aerial systems (29.6%) and the comprehensive plan for the upgrade and expansion of the main infrastructure (transport part) (25.1%), the Ministry said.