Russian Finance Minister Anton Siluanov said at a government meeting on January 10 that the country's federal budget deficit for 2022 had exceeded plan and ended the year at less than the 2% of GDP forecast earlier in the year.

However, Siluanov comments are controversial as the minister himself noted that the deficit was RUB3.3 trillion, or 2.3% of GDP, slightly higher than the 2% Ministry of Finance (MinFin) had previously forecast.

Looking at the budget on a monthly performance basis and the picture is less rosy with the deficit reaching a record RUB3.9 trillion ($56bn) in December, the month the G7’s oil price cap scheme came into force. Although Russia enjoyed a surplus during the other 11 months of 2022, December’s figures alone account for the bulk of the end of year result and brought Russia’s total budget deficit to RUB3.3 trillion rubles ($47bn) for the full year.

An increased deficit in December is not unusual; government spending in Russia often spikes at the end of the year as the federal government has many expenditures that are due in that month. However, in 2022 the deficit was made a lot worse by the situation on the oil market.

Siluanov downplayed the blow struck by tumbling oil revenues in the last month of the year, saying taking into account the funds paid by the state to extra-budgetary funds due to deferrals on insurance premiums, when those funds are subtracted from the spending, the deficit would come in at 1.8% of GDP, lower than the 2% he predicted in the summer, during the St Petersburg International Economic Forum (SPIEF).

Siluanov added that in 2022, budget revenues after subtracting the deferrals and insurances had surpassed their original plan. The total revenue amounted to around RUB28 trillion, which is RUB2.8 trillion higher than the original plan.

He credited this to the growth in oil and gas revenues, higher energy prices and growth of non-oil and gas revenues, including due to the increase in VAT due to growing demand during certain periods last year.

He also stated that despite the geopolitical situation, restrictions and sanctions, all planned spending targets were met, and, in fact, the spending had been increased. "On the contrary, we have increased expenditures – the growth was over RUB6 trillion – this money was primarily used to support people," he said.

In addition, Siluanov mentioned that all Russian regions have consistently executed their budgets and all scheduled responsibilities were met, with measures to assist citizens and businesses put in place last year.

But the outlook for the budget in 2023 is worse as expected falling oil and gas revenues will put more pressure on the budget and a larger deficit is expected.

In the first month of 2023, oil prices remain relatively low with Brent at about $80 per barrel, while Russian Urals has fallen below $40. In December 2022, Russian Urals oil cost an average of $50.47 per barrel - 1.4 times cheaper than in December 2021 ($72.7), and 1.5 times cheaper, than the average in 2022 ($76.7). On January 6 a barrel of Urals in the port of Primorsk in the Leningrad Region was sold at $38.

The price cap on seaborne Russian crude oil, enacted by the EU, G7, and Australia on December 5, limited the price to $60 per barrel and export volumes tumbled: for the rest of the month, Russia’s seaborne oil exports fell by 117,000 barrels per day to 2.615mn barrels per day on average.

According to the Finnish Centre for Energy and Clean Air Research (CREA), the price ceiling is costing Russia $172mn per day. CREA expects these losses to increase to $280mn per day in February when the EU ban on the purchase of Russian refined petroleum products comes into effect. The Russian Ministry of Finance estimates that the oil revenue loss in January alone will amount to RUB54.5bn rubles ($804mn).

The budget for 2023 has been drawn up with the same deficit as in 2022, a deficit of 2% of GDP, and an average annual price of Urals of $70.1 per barrel.