Russia plans 26% rise in budget spending

Russia plans to increase budget spending by 25.8% to 36.6 trillion roubles ($383 billion) in 2024, Prime Minister Mikhail Mishustin said on Friday, with hefty increases in military and social spending expected ahead of a March presidential election.

Moscow has heavily diverted funds towards what it calls a “special military operation” in Ukraine, and social spending will rise around the election in which President Vladimir Putin is expected to seek another six-year term.

The plans for next year envisage spending being equivalent to around 20.4% of gross domestic product (GDP), and Russia running a small budget deficit, with revenues expected at 35 trillion roubles, Mishustin said in a televised government meeting.

“Such significant growth will be possible thanks to the further development of our economy,” Mishustin said. “As part of this, non-oil and gas revenues should be twice as big as those from oil and gas.”

Russia’s economy has proved more resilient to Western sanctions that most Russian and Western observers first thought, but is now grappling with persistent inflation – which, at an annual 5.45%, is above the central bank’s 4% target – and double-digit interest rates.

Finance Minister Anton Siluanov said Russia would return to following its budget rule in 2024, envisaging an oil price of $60 per barrel.

Under its budget rule, Russia sells foreign currency from its National Wealth Fund (NWF) to make up for any shortfall in revenue from oil and gas exports, or makes purchases in the event of a surplus.

The government was discussing budget plans for the next three years. Bloomberg News reported that Russia is also planning a huge hike in defence spending next year, swelling to 6% of GDP from 3.9% in 2023 and 2.7% in 2021.

Rising defence costs are supporting Russia’s modest economic recovery this year with higher industrial production, but have already pushed budget finances to a deficit of around $24 billion – a figure compounded by falling export revenues.

Siluanov said Russia planned to raise domestic borrowing to more than 4 trillion roubles annually to fund its deficits.

Moscow doubled its target for defence spending in 2023 to more than $100 billion, Reuters reported exclusively in August, as the costs of the conflict in Ukraine spiral and place growing strain on government finances.

Siluanov said Russia’s NWF would hold 6.7 trillion roubles by end-2024, down from 13.7 trillion roubles, or 9.1% of GDP as of Sept. 1.

($1 = 95.7500 roubles)