Oil price cap may widen Russia’s 2023 budget deficit, says Finance Minister

MOSCOW  – Russia’s budget deficit could be wider than the planned 2 percent of GDP in 2023 as an oil price cap squeezes Russia’s export income, Finance Minister Anton Siluanov said, an extra fiscal hurdle for Moscow as it spends heavily on its military campaign in Ukraine.

Russia last week said price caps on its crude and refined products could see it cut oil output by 5 percent-7 percent early next year, but regardless of how deep the cuts are, Siluanov promised that spending commitments would be met, tapping borrowing markets and the country’s rainy day fund as needed.

“Is a bigger budget deficit possible? It is possible, if revenues are lower than planned. What are the risks next year? Price risks and restrictions,” Siluanov told reporters in comments cleared for publication on Tuesday.

He said a reduction in the volume of energy exports was possible, as some countries shun Russia and Moscow looks to develop new markets, a process that will dictate Russia’s export returns.

“(The price ceiling) is significant to the extent that to those countries that have set the ceiling, there will be no supplies,” Siluanov said. “This means there will be other countries. Yes, logistics (costs) will increase. Discounts may change as a result.”

Should volumes shrink, Siluanov said Russia has two sources of additional funding: the National Wealth Fund (NWF), which accumulates state reserves, and loans.

The government has borrowed heavily this quarter after several barren months following Moscow’s decision to send tens of thousands of troops into Ukraine, for what it calls a “special operation”. Russia now expects to use just over 2 trillion rubles ($29.24 billion) from the NWF in 2022 as total spending exceeds 30 trillion rubles, more than the year’s initial plan.

“Since the start of the special military operation, the macroeconomic conditions have changed, inflation has risen and a large volume of resources has been required to support families,” Siluanov said.

NWF spending in December could amount to 1.5 trillion rubles. As of Dec. 1, liquid assets in the NWF totalled 7.6 trillion roubles, or 5.7 percent of Russia’s GDP.

($1 = 68.4000 rubles)