Russia reports a painful RUB308bn deficit in January, but nowhere near as bad as the RUB1.7 trillion deficit in January 2023

Russia reports a painful RUB308bn deficit in January, but nowhere near as bad as the RUB1.7 trillion deficit in January 2023
A year ago Russia's MinFin reported disastrous budget deficit figures thanks to twin EU embargoes on its oil exports. A year later and MinFin has reported another deficit for January, but nowhere as bad as the previous result. / bne IntelliNews
By Ben Aris in Berlin February 8, 2024

When the January 2023 Russian federal budget deficit numbers came out this week a year ago a collective cheer went up from Western analysts: they were disastrous.

The West slapped Russia with a twin set of oil sanctions: a ban on crude imports to Europe on December 5 followed by a ban on Russian oil product imports on February 5 that were supposed to gut Russia’s ability to make money. And in the first months of 2023 it looked like they were going to work. But a year on and the Ministry of Finance (MinFin) has just reported another deficit for this January of RUB308bn ($3.4bn). Deficits in January are unusual, but RUB308 is very modest and has more to do with the $100bn the Kremlin is spending on the war than any serious reduction in oil and gas revenues.

Twin oil sanctions

The effect of the twin oil sanctions last year was immediate and appeared to be extreme.

After eleven months of budget surpluses in 2022 and nine months of war, Russia’s budget revenues collapsed in December, plunging by RUB3.4 trillion in a month, serving up a 2.3% of GDP deficit for the whole year. Russian Finance Minister Anton Siluanov tried to put a positive spin on the terrible results and massage the end-of-year result downwards, but MinFin nevertheless reported the disastrous results.

An increased deficit in December is not unusual; government spending in Russia often spikes at the end of the year, as the federal government has many expenditures that are due in that month. However, in 2022 the deficit was made a lot worse by the situation on the oil market as revenues collapsed following the introduction of the first of the two embargoes.

Then things got a lot worse in January when the Ministry of Finance (MinFin) reported another disastrous month: a deficit of RUB1.7 trillion in January alone, more than half the full-year target of RUB2.9 trillion and the biggest ever January deficit since the crisis year of 1998. By the end of March the deficit had exceeded the target for the full year.

Siluanov kept his cool. He explained that some of the deficit in January was due to accounting changes, some was due to a new policy of frontloading end-of-year payments to January and finally he assured that oil and gas revenues would recover in the second half of 2023.

No one believed him. Analysts predicted that the deficit for 2023 would miss the 2% of GDP by a wide margin; the more modest predictions were for 3-4% of GDP deficit and amongst the most extreme were for the hole to blow out to as much as 12% of GDP.

But Siluanov was right. The doomsaying predictions assumed that the EU twin embargoes meant Russia could no longer sell its oil. But the Kremlin was confident it could.

It took four months to redirect Russia’s oil exports to Asia – a round trip of some four months – after which the money started flowing back into the Kremlin’s coffers. Sure enough, four months later the budget went back into profit in May as the first wave of oil tankers completed their first round trip.

By the summer the new transport route was fully working. The cumulative deficit began falling again and by August the federal budget deficit was back inside the 2% of GDP target for the full year. By the last quarter oil and gas revenues were so strong, Siluanov started talking about holding the deficit to a mere 1% of GDP.

Do the maths

Looking at the details and in previous years the budget has been flat or slightly positive in January after the heavy spending in December. Last year’s huge deficit stands out as exceptionally large, but even the RUB308bn deficit this January is unusually large.

In hindsight it appears that frontloading the regular December payments did contribute heavily to the large deficit in January 2023. December always sees the government’s heaviest spending, as the chart shows – typically a fifth of the entire year’s expenditure.

December 2023 did see the typical splurge, but it was only typical. The ministry spent more than RUB5 trillion in December 2023, following on from a RUB7 trillion splurge the year before, but according to bne IntelliNews estimates the December 2023 deficit was a much more modest RUB1.5 trillion, on a par and actually slightly less than in 2020 and 2021, and well behind the almost RUB4 trillion monthly deficit in December 2022. (chart)

Siluanov was hoping to end 2023 with a 1% of GDP deficit, but the December spending coupled with falling revenues due to lower oil prices combined to deliver a deficit of 1.9% of GDP (RUB3.24 trillion, or $36.4bn) – just slightly less than the 2% target.

According to the preliminary results the total revenues increased 4.7% y/y to RUB29.12 trillion in 2023 and spending climbed by 4% to RUB32.36 trillion.

Given 2023’s extraordinary military spending and the oil price cap sanctions, keeping to the original deficit target is a remarkable testament to MinFin’s management skills.


Russian budget deficit (monthly RUB bn)





































































source: Russia's Ministry of Finance



Oil revenues, and less so gas, remain very important to Russia’s earnings, but it still has plenty of other money in reserve.

The drop in Russia's oil and gas revenues to RUB8.82 trillion in 2023, from RUB11.59 trillion in 2022, is still significant. The ministry said the decline was due to a high base in 2022, lower Urals prices in the early part of last year and reduced export volumes of natural gas.

Russia’s international reserves grew by $1.1bn in the last week of January to top $587.8bn, counting in the frozen $300bn of reserves in Europe, the Central Bank reported. Of the remainder, about $135bn is in the form of monetary gold and another $100bn is in the currencies of friendly countries, mostly yuan.

The state’s rainy-day fund, the Russia’s National Wealth Fund (NWF), has been run down by around RUB2 trillion over the course of 2023, which is an unpleasant trend for MinFin, but it is still well stocked and holds enough for at least another year of war with the current levels of spending.

The NWF held a total of RUB11.9 trillion ($135bn) as of February 1, or 6.6% of GDP, according to MinFin. However, the problem with this reserve pool of cash is that just over half of it has been tied up as loans or guarantees for various large companies, infrastructure projects and other tasks deemed important by the Kremlin, and cannot be turned back into spendable cash quickly.

MinFin burned through around RUB2 trillion of the NWF in 2023 to cover part of the budget deficit: the all-important “liquid part” of the NWF has fallen from RUB6.8 trillion at the start of 2023 to RUB4.9 trillion ($53bn), or 2.7% of GDP, as of February 1.

While the NWF held enough to cover the officially forecast RUB2.9 trillion deficit in 2023 more than twice over last January, this January the fund holds enough liquid cash to cover the same circa RUB3 trillion deficit for 2024 by one and half times over. However, the official plan for 2024 forecasts the deficit to fall dramatically in 2024. Planned expenditure is RUB36.6 trillion (a 26.2% y/y increase) that will be more than offset by an increase in revenues to RUB35 trillion ($349bn).

“This means that the budget deficit next year, at least according to the government's plans, should significantly decrease – from a planned 2% of GDP in 2023 to 0.8% of GDP in 2024,” Carnegie Endowment for Peace said in a recent note.

If the MinFin can pull that off then there is enough money in the NWF to fund years of war.


The NWF is not the only source of funding MinFin can tap. While Siluanov could fund the entire budget deficit only using money in NWF, he has chosen not to and has tried to spread the load across several sources.

The most obvious is taxes. Russia’s tax take had already dramatically improved before the war after Prime Minister Mikhail Mishustin, then the head of the tax administration, revolutionised tax collection in around 2020 by setting up a new IT system and stamping out age old scams like the infamous “fly-by-night” companies that would accumulate significant tax-debt only to be legally bankrupted the day before they were due to pay. In the course of one year, MinFin saw the tax take increase by 20%, while the tax burden only rose by 2%.

Raising taxes in wartime is normal, but Siluanov has bent over backwards to try to avoid blanket hikes of the basic taxes like corporate profit and personal income taxes, or VAT, which alone accounts for a third of the state’s income.

The situation in Ukraine is much more dire, where the state increased the banking sector profit tax to a temporary 50% after Ukraine’s banks also had a very profitable year in 2023 and has been cracking down on the biggest corporations for more tax.

Siluanov has continued the work of fine tuning the tax system to squeeze out more revenues and more efficiently implement existing rules. A 25% increase in non-oil and gas revenues in 2023 offset a 23.9% drop in energy revenues as the Western sanctions began to bite.


Russian federal budget revenues 2023


RUB trillion

percentage change y/y

total revenues



oil and gas



non-oil and gas






personal income



total expenditure






source: MinFin


He said last year a series of government spending cuts, increased efficiency and a revision of the rules could increase the tax take by hundreds of billions of rubles. One of the ironies of the war in Ukraine is that it has forced many deep structural reforms on the government that have been put off for decades.

Another source of money has been to tap the biggest state-owned companies. The pay out of 50% of profits as dividends is now being strictly enforced, after the giants of the publicly owned sector have resisted the 50% rule for years.

Siluanov has preferred ad hoc measures to scrounge up more revenue. Last spring Siluanov met with the Russian Union of Industrialists and Entrepreneurs (RSPP), Russia’s big business lobbying group, to ask them to voluntarily pay a special “windfall tax” to raise an extra RUB300bn. The companies were happy to pay a one-off payment, which has since been institutionalised, but called on the government to introduce more predictability in the tax regime going forward.

Banking sector liquidity

If things start to go badly wrong for MinFin it has one last really big pool of money to tap: the banks.

Russian banks had the most profitable year on record in 2023, earning a massive RUB3.3 trillion ($33.3bn) in profits. More importantly, the liquidity in the banking sector rose from RUB17 trillion at the start of 2023 to just under RUB19 trillion ($208bn) that MinFin can tap at will with bonds.

Domestic banks are now the only buyers of Russian Finance Ministry’s OFZ treasury bonds after foreigners have largely disengaged from the Russian sovereign debt market. After the start of the war they reduced their share from about 35% to 8% of the total outstanding. Non-resident holdings have dropped RUB1.2 trillion (or 45%) since October 2022 as bonds matured. Over the same period, Russian bank holdings have risen by close to RUB4.3 trillion (or 47%) – more than enough to cover the deficit by itself.

OFZs have always been an important source of funding for MinFin, which issued just under RUB3 trillion worth of the bonds in 2023, largely covering the budget deficit needs. Indeed, budget revenue collection was going so well at the end of last year, MinFin reduced the amount of quarterly issues from around RUB800bn a quarter to RUB500bn in the last quarter.

This year MinFin intends to raise the same RUB3 trillion from bond issues, but in times of crisis in the past has raised the total to RUB4.5 trillion, after which issuing new debt starts to become prohibitively expensive, so MinFin tends to use bond issues sparingly.

With a liquidity pool of around RUB18 trillion in the banking sector, MinFin can, in theory, fund the deficit for many years just by tapping the bank sector liquidity.