Revenue collapses: Russia’s surplus vanishes into thin air

Income collapses
Russia’s surplus vanishes into thin air

By Jan Ganger

For months, Russia ran a huge budget surplus in the face of skyrocketing commodity prices. But those times are apparently over. In August there was a deficit in the billions.

Russia’s budget surplus is shrinking. According to the Treasury Department, the state budget had to cope with a deficit of the equivalent of 5.7 billion dollars in August. The main reasons for this: falling revenues from the sale of raw materials and high expenses due to the war in Ukraine.

In the first seven months of the year, the budget surplus was the equivalent of $8 billion. In the period up to the end of August it was only $2.3 billion. The surplus is thus falling rapidly, albeit less sharply than in July. To put this in perspective: in the first half of the year, Russia accumulated a surplus of almost 23 billion dollars thanks to exploding commodity prices and thus filled its war chest.

But in the meantime, gas and oil exports to Europe have fallen massively. For one thing, Europeans are replacing energy with supplies from other countries. On the other hand, the state-controlled Gazprom group has throttled deliveries through the Baltic Sea pipeline Nord Stream 1 to Germany. The company announced earlier this month that it had shipped half as much gas to the EU this year as it did a year ago. This month, revenue is likely to fall sharply further as Gazprom has completely halted Nord Stream 1 delivery.

In addition, the price of oil has fallen sharply in recent weeks. Due to a lack of pipelines, Russia cannot easily deliver gas that has been pumped to Europe to other countries, such as China. In addition, Russia’s oil only finds new buyers with strong price reductions.

IMF predicts recession

At the same time, expenses remain high. The Kremlin must fund its war in Ukraine while Russian troops face setbacks. The government is also trying to mitigate the effects of Western sanctions on its own population – for example through higher pensions.

The revenues from the oil and gas business are very important for the Kremlin. In the past, up to half of the budget was based on this income. So far, Russia had achieved record revenues despite falling exports. But that seems to have changed in the past few weeks. In the first eight months, total revenue was almost 20 percent below the previous year’s level, as the “Financial Times” reports, citing the Russian Ministry of Finance.

According to Moscow’s Economy Ministry, Russia’s gross domestic product fell 4.3 percent year-on-year in July. The International Monetary Fund expects a deep recession in Russia and estimates that economic output will shrink by 6 percent this year. For 2023, the fund expects a minus of 3.5 percent.

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