The Russian Finance Ministry more than tripled its budget deficit target for this year after expectations for revenue and the price of oil were reduced amid US President Donald Trump's tariffs.
The government now plans to run a shortfall equivalent to 1.7% of gross domestic product compared with the initial 0.5%, the ministry said in a statement Wednesday. Revenue for the year is anticipated at 38.5 trillion rubles ($615 billion), lower than the originally targeted 40.3 trillion rubles.
Russia reduced its projection for oil and gas income by 24%. Earlier, the Economy Ministry lowered its oil price forecast to US$56 per barrel from US$69.70, while also raising its inflation forecast to 7.6% from 4.5%.
The increase in the budget deficit will have to be covered by spending from the National Wealth Fund, said Oleg Kouzmin, an economist at Renaissance Capital in Moscow, adding he didn't "see any major surprises in the budget update" given the weaker oil price due to Trump's trade wars. Still, the government has "room for maneuver" within the current projection for the average oil price, he said.
The world's major oil forecasting agencies have all cut their outlooks for oil demand in 2025, as the US president's tariffs on imports and the subsequent retaliatory duties imposed by China have the potential to upend international trade and the global economy.
Despite tempered expectations for proceeds from energy exports, planned budget spending was increased by 2% compared to what was initially set in the budget law and now stands at 42.3 trillion rubles, according to Bloomberg calculations, based on new Finance Ministry data. That includes record spending on the military as Russia continues its war on Ukraine.
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Russia will rely on non-oil income growth stemming from higher taxes and aims to fulfill all planned obligations to finance defense, social support and technological development "regardless of external conditions and factors," Finance Minister Anton Siluanov said in a statement.
The Bank of Russia has repeatedly highlighted the potential rise in government spending and widening of the fiscal deficit as among the main inflationary risks that might undermine the effectiveness of tight monetary policy. The central bank has struggled to fight accelerated price growth, which still exceeds 10% in annual terms, by keeping the benchmark interest rate at an all-time high of 21% since October.
Rate setters last month stopped signaling the potential for additional rate hikes, but warned that a revision of the budget parameters could cause them to change their stance.
