January 6, 2023 MEMRI Daily Brief No. 444

For The Time Being, Russia Looks Secure Against Financial Troubles

January 6, 2023 | By Dr. Vladislav L. Inozemtsev*
Russia | MEMRI Daily Brief No. 444

Few things are less certain in Russia than the country's federal budget. Unlike in most developed nations, Russian President Vladimir Putin approved Russia's budget not only for the upcoming year but for three years. This practice was introduced in 2007, as the country seemingly regained some degree of economic stability, becoming a reflection of the dreams of Russia's ruling class.

If one looks at the budgets adopted between 2008 and 2016, it is possible to see that the revenues differ from those envisioned for the third year by 28 percent on average (caused by outpacing the revenues and being short in them),[1] and the spending differs by 12 percent (in 2016 the gap was the largest ever recorded, reaching 42 percent).[2]

It is worth noting that in the framework of a three-year budget, the budget deviation may become bigger than 50 percent. Nevertheless, the Russian Finance Ministry still drafts three-year budgets, and the State Duma approves them with little debate and quite insignificant amendments. For 2022, the revenues were forecast at 25 trillion rubles while the appropriations at 23.7 trillion rubles;[3] the most recent projections put them at 27.6 trillion rubles and 29.4 trillion rubles, thus turning a provisional 1.33-trillion-ruble surplus[4] into a 2.9-trillion-ruble deficit.[5]

(Source: Twitter)

The Cost Of War Outweighs All Additional Revenues

Of course, the year 2022 was marked by Russia's military invasion of Ukraine, and, because of the war, almost all economic projections went bust immediately after February 24. However, despite the Russian aggression and the sanctions it has caused, federal revenues exploded in mid-2022 as the gas and oil prices surged in Europe, and the local energy companies did their best to intensify imports from Russia almost until the moment the oil embargo came into force on December 5.[6] Natural gas supplies had gone down since June and came almost to a standstill after the North Stream pipeline was blown up on September 26.[7]

In fact, thanks to oil and gas export duties as well as commodity extraction tax and profit tax both paid by the oil and gas companies, the Russian federal budget reported an excess of 11.5 trillion rubles in the so-called "oil-and-gas revenues,"[8] which is by far the largest amount ever. Yet, even in such circumstances, the cost of war outweighs all additional revenues. Since August, the monthly budget calculations show that the Kremlin is running into increasing deficits, forcing the Finance Ministry to take a trillion rubles from the National Wealth Fund and to borrow 1.4 trillion rubles on the domestic market (from October to early December), even while the limit for such borrowing was put at 150 billion rubles for the entire fourth quarter.[9] It is exactly in this period of time that the government sent to the State Duma its 2023 budget proposal, which was voted for on November 24[10] and signed into law by President Putin on December 5,[11] but which I would call one of the strangest ever adopted.

It Is Unrealistic To Think That The 2023 Budget Will Match The 2022 One

The Finance Ministry presumes that in 2023 the federal budget revenues will match those one of 2022 (26.1 trillion rubles in 2023[12] compared to 27.2 trillion rubles expected in 2022 – almost the entire difference can be explained by a one-time revenue of 939 billion rubles from large oil and gas companies that will be charged under a newly adopted law), while both VAT and income taxes are expected to increase compared to 2022. However, the assumption that this year's budget will match the one last year seems completely unrealistic due to several factors.

First of all, it is important to analyze Russia's capacity to export its energy resources, from which up to 40 percent of budget revenues originated this year.[13] In November, ahead of the closure of the European market, Russian crude oil exports stood at approximately 5.1 million barrels per day,[14] with an increase of 18.6 percent, compared to the 4.3 million barrels per day exports in November 2021.[15] Furthermore, the natural gas exports were at four billion cubic meters per month,[16] with a decrease of 72 percent compared to the same month of the previous year.[17] It is hard to imagine a radical turnaround of this trend in 2023, therefore I expect the oil exports to fall by at least 10-15 percent from the current levels.

It is also worth noting that the prices for Russian commodities are tumbling: the Urals oil is priced around $48-51 per barrel of crude oil, while its price reached $106 per barrel of crude oil as recently as in March 2022.[18] However, with the price cap in place, I would not bet on an average Urals oil price exceeding $55 per barrel of crude oil in 2023. In this case, the revenues would be reduced by 25-30 percent compared to those of 2022. The situation with natural gas will be even worse, as Turkey is already asking for a payment delay until 2024 and,[19] in July, China was paying Gazprom only around 15 percent of the price it got from European customers that virtually do not exist now.[20] Hence, I would assume that the oil-and-gas revenues will fall well below the 2021 level, to 7.5-7.7 trillion rubles for 2023 (while the Accounting Chamber estimates them at 8.7 trillion rubles).[21]

Russia is expected to suffer not only because of the partial loss of commodity incomes but also due to the declining domestic economic activity and falling tax collection. As consumer spending falls, and the investment of the state-controlled corporation decreases, the VAT on domestically produced goods will follow suit by at least 10 percent (Rub 400-450 billion), while the VAT collected from imported goods will decrease even faster, as in 2022 the imports into Russia decreased by roughly 25 percent. The most dramatic decline will be in those groups of goods that accounted for the most part of the collected duties (motor vehicles, luxury items, etc.). The only increase in revenues that looks fairly realistic is the elevated tax on oil and gas companies introduced on November 10,[22] which is expected to yield up to three trillion rubles in 2023-2025. [23]

The 2023 Federal Budget's Revenue And Spending Sections Look Fictitious

The 2023 federal budget's revenue section looks fictitious, as the most probable result of the fiscal year will be a strong decline of at least 15 percent in collected funds, which equals 1.6-2.3 trillion rubles. Alongside this decline, the regional budgets will suffer from lower revenues, since the income tax that fuels them will be smaller by at least four to six percent compared to 2022. All these trends seem to be so obvious that it is hard to understand why the government and the parliament enacted such a budget proposal.

It is worth noting that the spending section is no less mysterious. Since Russia is at war, and there is little hope that Putin will withdraw his forces from the occupied territories, military appropriations attract the main attention. In 2022, as many experts suggest, Russia spent an enormous amount of money on the war. British and Ukrainian analysts estimated Russia's expenses at $82 billion for the first nine months of the campaign, which would equal 5.6 trillion rubles[24] if the weighted average exchange rate is applied.[25]

However, I would say that the real spending was considerably lower since around $20 billion in these calculations account for destroyed armored vehicles, downed aircraft and helicopters, and other losses of weaponry and ammunition,[26] but all this military material was not paid from the budget for the 2022 fiscal year. The weapons used in the conflict were produced and dispatched to the military mostly before the invasion of Ukraine started, and some of them were also taken from the old Soviet arsenals. Official Russian estimates put the military expenses for 2022 at 4.68 trillion rubles, or $68 billion,[27] and I would say that they seem to be correct. But what looks absolutely unrealistic are the military appropriations for 2023 enshrined in the federal budget at a marginally higher level – namely, at 4.98 trillion rubles.[28]

There are two main factors in the military appropriations for 2023: first, the fact that a large part of the old ammunition will be exhausted, so the Russian military would be forced to order much more new armaments than it needed in 2022 (and I would estimate additional spending at not less than 600 billion rubles); second, there is an important issue of payment due to mobilized soldiers and their relatives (if one estimates the total number of these recruits at 300,000, and the number of killed during 2023 at 100,000, those payments would reach a trillion rubles).[29]

Therefore, I would argue that the realistic assessment of the Russian military expenditures for 2023 would stay at around 6.5 trillion rubles. A part of this sum is covered by the spending on national security issues that will increase by 1.4 trillion rubles, which is 50 percent, reaching 4.2 trillion rubles.[30]

Russian Banks Manage Huge Deposits

In 2023, the Russian government will run much higher budget deficits than expected. Instead of the 2.9 trillion rubles put into the enacted budget proposal, the deficit may reach at least six trillion rubles, or the four percent of the 2023 projected GDP . Hence, the most important issue is to analyze whether this budget deficit is sustainable for the Russian Federation at a time when the economic activity is slowing down, as almost one million predominantly young and self-made people left the country in 2022, and the capital flight is expected to reach an all-time high at over $250 billion.[31]

Nevertheless, for at least three reasons, there is no danger in sight to the Russian government's finances. First, since President Putin took power in 2000, the Russian leadership became obsessed with both repaying the public debt and amassing monetary reserves sufficient to survive dramatic financial challenges. As of January 2022, the debt was estimated at a mere 20.9 trillion rubles, or 18.1 percent of GDP,[32] and the cash reserves kept in the National Wealth Fund amount to 7.6 trillion rubles[33] – so even if the government has no other resources, these funds will easily cover the entire 2023 federal budget deficit.

Second, Russian banks manage huge deposits held by both business corporations and citizens. If one looks only at the private accounts there are at least 33.4 trillion rubles placed in banks by Russians.[34] As the recent developments on financial markets show, private depositors are reacting well to the changes in interest rates, and it would be quite easy for the Finance Ministry to borrow several trillion rubles if it proposes attractive deals, even keeping the rate below the official inflation figures.

Third, the government may also borrow from the Central Bank using commercial banks as intermediaries. In this case, the banks can buy Federal Loan Notes (OFZ) in amounts exceeding their own funds – and, if their clients withdraw some of their assets, they are able to put OFZs in a pledge with the Central Bank getting necessary funds at the Central Banks' key rate. It means that commercial banks may serve as nominal holders of the Government treasury notes, while a large part of the interest payments will be channeled through their accounts to the Central Bank anyway, which in fact means that the government borrows from the Central Bank. This option is very attractive since, according to Article 26 of the Federal Law on the Bank of Russia, three quarters of the profits on which the bank reports every given year are to be sent back to the Federal Budget the following year, making the scheme extremely cheap and reliable.


I would estimate that the Russian government may easily mobilize at least 15 trillion rubles in two to three years to settle the budget deficits. This spending will not cause a dramatic rise in inflation, since most of the money will be either wasted on the war in Ukraine or spent on investments that will not cause a huge increase in people's real disposable incomes.

This means that Russia looks well-secured against financial troubles. Hence, the Kremlin is in no rush to adjust its geopolitical aspirations or terminate its aggression against Ukraine. Russia's federal budget for 2023 cannot be treated as a serious document since, as it may be corrected several times during the year, and significant budget cuts also cannot be excluded. It is clear though that the Russian leadership can sacrifice any economic achievements for its "strategic" geopolitical goals, and, at least for some time, it may well afford it.


*Dr. Vladislav Inozemtsev is MEMRI Russian Media Studies Project Special Advisor, and Founder and Director of Moscow-based Center for Post-Industrial Studies.


[1], July, 11, 2016.

[2], July 8, 2016.

[3], November 24, 2021.

[4], November 24, 2021.

[5], December 12, 2022.

[6], December 14, 2022.

[7], September 30, 2022.

[8], December 7, 2023.

[9], November 23, 2022.

[10], November 24, 2022.

[11], December 5, 2022.

[12], November 24, 2022.

[13], December 12, 2022.

[14], December 14, 2022.


[16], December 1, 2022.

[17], December 14, 2022.


[19], December 8, 2022.


[21], November 10, 2022.

[22], November 11, 2022.

[23], September 20, 2022.

[24], November 24, 2022.


[26], November 24, 2022.

[27], September 23, 2022.



[30], September 23, 2022.

[31], October 28, 2022.

[32], March 3, 2022.

[33], December 10, 2022.


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