Experts of the Gaidar Institute Assessed Budget Deficit of over 2% of GDP

According to the study, the RF Federal Budget short-received expected revenues may amount to around Rb1.3 trillion in 2024, that is, there is a risk of a budget deficit rise to approximately Rb4 trillion at the year-end. Thus, the possible federal budget deficit will double straightaway in 2024, although it was initially expected to be equal to Rb2.1 trillion, or 1.1% of GDP.

The authors of the monitoring note that the federal budget “keeps demonstrating an even and synchronized implementation of the planned volumes of revenues and expenditures.” But, on the other hand, oil prices do not let you relax. “A possible decline in oil prices and stabilization of the ruble exchange rate at a higher level as compared to H1 2024 can affect the revenues situation until the end of the year,” the study says.

However, experts claim that even this size of the deficit amounting to Rb4 trillion “is not a threat to macroeconomic stability,” it is just a little more than 2% of GDP. But, on the other hand, deficit growth will require “an accelerated increase in the volume of borrowings,” and “regardless of the prevailing unfavorable situation on the domestic debt market.” In other words, the Ministry of Finance will have to borrow more on the domestic market to compensate for the lack of funds.

“With the current key rate prevailing, they will have to borrow at a high rate of return, which situation inevitably results in an increase in interest payments over a long-term horizon,” experts say. In their opinion, “it is more profitable for the Ministry of Finance to abandon the placement of federal loan bonds (OFZ) with constant coupon income and increase the share of debt with variable coupon payments, but the latter, in turn, are less attractive to investors.”