Russia’s budget surplus evaporates as energy revenues decline

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

Russia recorded a surplus of nearly 500 billion rubles in the first seven months of the year. But the cumulative total fell to just Rbs 137 billion last month, suggesting a big deficit in August that economists attributed to a sharp drop in oil and gas revenues. Russia’s surplus in the first six months of the year reached Rbs1.37tn as it built up a war chest thanks to soaring energy prices.

Russian gas flows to Europe have dwindled to about a fifth of pre-invasion deliveries. In early September, he announced he would keep Nord Stream 1, which runs under the Baltic Sea to Germany, closed indefinitely unless the West lifts sanctions imposed following Moscow’s invasion of Ukraine.

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

Oil and gas revenue, which accounts for almost half of budget revenue received so far this year, fell 18% year-on-year in the January-August period, the data showed.

The EU has also banned imports of Russian coal. An EU ban on imports of Russian crude oil is expected to come into effect in December.

Non-oil and gas revenue also fell drastically, by 37% year on year, in January-August, the data showed.

Russia initially showed resilience by withstanding the impact of punitive measures, including the freezing of half of its foreign exchange reserves.

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

Revenues are expected to deteriorate following Russia’s suspension of Nord Stream 1, one of its main gas pipelines to Europe, in early September.

Russia’s economy shrank 4.3% in July 2022 from the same month a year earlier, according to the country’s economy ministry. Analysts at Aton, a Russian brokerage firm, expect the economy to contract another 5% in 2023 due to lower energy production.

The Russian central bank was cautious on the economic outlook in a report published last week on the regional economy, noting that exports were likely to fall.

The central bank is due to meet on Friday for a decision on interest rates.

Monetary policymakers raised rates to a record 20% and introduced capital controls to quell an attack on the ruble in the days after the outbreak of war. Borrowing costs have been gradually lowered since then and now stand at 8%.