Russia’s budget surplus evaporates as energy revenues shrink

Russia’s 2022 budget surplus has nearly evaporated after a sharp decline in energy exports in August led to a monthly deficit of Rbs 360 billion ($5.9 billion).

Russia recorded a surplus of almost 500 billion Rbs in the first seven months of the year. But the cumulative total fell to just Rbs 137 billion last month, pointing to a large deficit in August that economists attributed to sharp declines in oil and gas revenues. Russia’s surplus for the first six months of the year reached Rbs 1.37 trillion as it built a war chest on the back of rising energy prices.

Russian gas flows to Europe have declined to about one-fifth of supplies before the invasion. In early September, it said it would keep Nord Stream 1, which runs under the Baltic Sea to Germany, indefinitely unless the west lifts sanctions imposed after Moscow’s invasion of Moscow.

The sharp deterioration in Russia’s state finances comes as its army is routed into northeastern Ukraine in its biggest military setback since the defeat of the battle for the capital Kiev in March.

Oil and gas revenues, which make up nearly half of budget revenues received so far this year, were down 18 percent year-on-year in the January-August period, according to the data.

The EU has also banned the import of Russian coal. An EU ban on Russian crude oil imports will come into effect in December.

Non-oil and gas revenues also fell dramatically, by 37 percent year-on-year, in January-August, the data shows.

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Russia initially showed resilience in weathering the impact of punitive measures, including a freeze on half of its foreign exchange reserves.

But Russia’s state gas monopoly, Gazprom, said earlier this month that production fell 15 percent year-on-year in the first eight months of the year. Exports, mainly to Europe, fell by more than a third.

Revenues appear to be deteriorating following Russia’s suspension of Nord Stream 1, one of the main gas pipelines to Europe, in early September.

According to the Ministry of Economy, the Russian economy shrank by 4.3 percent in July 2022 compared to the same month a year earlier. Analysts at Aton, a Russian brokerage, expect the economy to shrink by another 5 percent in 2023 as a result of declining energy production.

Russian central bank expressed caution about economic outlook in a report

published last week on the regional economy, noting that exports were likely to fall.

The central bank will meet on Friday to decide interest rates.

Monetary policymakers raised interest rates to a record 20 percent and introduced capital controls to quell an attack on the ruble in the days following the outbreak of the war. Borrowing costs have been gradually reduced since then and are now at 8 percent.


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