Russia’s budget deficit in the coming year might exceed the expected 2% of GDP as the oil price cap hurts export income, the country’s Finance Minister Anton Siluanov said on Tuesday.
This marks the first time a Russian official has acknowledged that the $60 per barrel price cap imposed on Russia by Europe and G7 nations will negatively impact its economy. Siluanov says the country will tap debt markets to bridge the deficit. Russia expects to use just over 2 trillion roubles ($29 billion) from the National Wealth Fund (NWF) in 2022 as total spending exceeds 30 trillion roubles, above the initial budget.
Russia’s economy is expected to contract three percent in the current year - a sharp turnaround from its growth in 2021, with Central Bank governor Elvira Nabiullina citing “worsening trade conditions” as a key reason. Russia’s cash flows are expected to weaken considerably in 2023 as oil and gas sales to Europe plunge. Ukraine’s Ministry of Economy expects that the EU embargo on Russian oil and petroleum products should cut Russia’s profits by at least 50%.
“We expect the collapse of profits from oil and gas exports to be at more than 50%, precisely because of the introduction of the EU embargo on oil and petroleum products and the introduction of price restrictions. Oil and gas account for 60% and 40% of federal budget revenues. We expect that Russia’s revenues will fall below the critical level of $40 billion per quarter,” Yuliya Svyrydenko, First Deputy Prime Minister and Minister of Economy of Ukraine, has said. She has expressed hope that plunging profits will make it more difficult for Russia to continue waging an expansive war.
Meanwhile, the Russian rouble has finally caved in, slumping past 70 per U.S. dollar to a more than seven-month low courtesy of plunging crude prices as well as fears that sanctions on Russian oil could hit the country’s export revenue, Reuters reports. Russian equities have also taken a hit, with the dollar-denominated RTS index down 5.4% to 982.8 points, a more than two-month low.
By Alex Kimani for Oilprice.com
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