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Kremlin, Moscow (Photo: REUTERS/Maxim Shemetov)
Moscow is preparing to cut up to RUB2 trillion ($25 billion)
from federal and regional budgets (0.8% of GDP) to try and tame the
ballooning state budget deficit, Bloomberg reported
on March 12, citing sources.
Bloomberg said officials are ready to trim 10% from all “non-sensitive” spending with the biggest impact falling on economic and infrastructure projects. Once implemented, the cuts will total roughly RUB2 trillion based on data from Russia’s Finance Ministry reviewed by Bloomberg.
“The cuts would begin after a formal decision is made, which may take time as it requires parliamentary approval, and wouldn’t affect spending already allocated this year,” the report adds.
Sources said that the Kremlin does not plan to reduce military or social spending.
Bloomberg added that the move follows a lowered oil price used in Russia’s budget rule that governs withdrawals from the National Welfare Fund. When the price of Russian oil falls below $59 a barrel, oil revenue shortfalls have been covered by reserves.
Russia’s Finance Ministry confirmed that budget cuts are under discussion. Bloomberg quoted the Central Bank as warning that without spending cuts the ministry would have to increase borrowing to cover the deficit, a scenario that could complicate anti-inflation measures and slow the current cycle of monetary policy easing.
The report said officials are reviewing fiscal rules and spending limits because the National Welfare Fund is being depleted rapidly.
“The latest fiscal discipline is aimed at addressing the country’s longer-term financial outlook amid increasing strain from the Kremlin’s war on Ukraine,” Bloomberg said.
“It underscores that Moscow sees the current spike in prices and demand for Russian oil linked to the Middle East conflict as temporary.”
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