Federal budget deficit and its implications for Russia’s economy

The draft federal budget approved by the State Duma, lower house of Russia’s parliament, evidences that national economy has not yet passed the bottom point, Sergei Khestanov, Associated Professor of the Department of Financial Markets and Financial Engineering at the Russian Academy of National Economy and Public Administration, believes.


In his view, there were several causes for a dramatic weakening of the national currency in October, including oil price and uncertainties around the final outcome of the US presidential election. Another major factor undermining the value of the Russian currency is the government’s strategy aimed to reduce budget deficit. As a substantial share of the government revenues is derived from exports, Finance Ministry therefore favors a weaker ruble.

As Sergei Khestanov pointed out, according to the draft federal budget, in 2021 budget deficit will be as low as 2.4%. Such an essential reduction of the budget deficit is quite surprising since in a crisis environment governments usually increase their spending and cut taxes. Yet in Russia, quite the opposite policies are now observed with taxes going up while spending by the national reserve fund being quite insignificant. The reserve fund was set, intended, and has been accumulating financial resources to be used as a cushion when a black day comes. The black day has certainly come to Russia, but the thrifty government is reluctant to spare accumulated reserves. The only explanation to that is, the really bad times, in view of the national authorities, are still ahead, Sergei Khestanov concluded.

As Invest Foresight reported earlier, referring to the opinion of Mikhail Delyagin, Director of Institute for Globalization Issues, Russia finds itself in a deep crisis and it will take both entities and individuals a long time to overcome the pandemic’s aftermaths.

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