By Darya Korsunskaya and Alexander Marrow
(Reuters) -Soaring government spending pushed Russia’s budget deficit to 2.70 trillion roubles ($31.45 billion) in the first two months of 2025, the finance ministry said on Tuesday, adding that low oil prices could squeeze Moscow’s crucial energy revenues.
Spending has jumped in the last three years, with Moscow channelling funds into its military and defence sector as it prosecutes its February 2022 invasion of Ukraine. Russia’s 2024 fiscal shortfall was around $34 billion, or 1.7% of GDP.
The finance ministry puts this year’s early spending spree down to the advance payment of contracts.
Russia’s deficit for the first two months of 2025 amounted to 1.3% of gross domestic product (GDP), compared with 0.6% of GDP or 1.13 billion roubles in the same period last year.
For January-February 2025, spending stood at 8.05 trillion roubles, 30.6% higher year-on-year, the ministry’s preliminary data showed, but slowed from January to February.
Budget revenues were 5.34 trillion roubles, up 6.3% year-on- year, led by non-oil and gas revenues, which climbed 11.1% to 3.78 trillion roubles.
The increased spending is fuelling higher inflation and the central bank regularly cites the huge fiscal stimulus as a factor that forces it to keep interest rates elevated.
When holding interest rates at 21% last month, Governor Elvira Nabiullina said it was very important that the government sticks to its plans for the budget deficit.
OIL PRICE RISKS
In just two months, the government has spent almost one fifth of the total planned 2025 expenditure of 41.47 trillion roubles. Some 41% of that will be spent on defence and security.
Moscow expects the deficit to narrow to 0.5% of GDP this year thanks to increased tax revenues and reduced social spending in real terms.
However, falling oil prices, which earlier this month sank to their lowest since late 2021, and the rouble strengthening on hopes of easing geopolitical tensions, could complicate matters.
The energy sector generates about a third of all Russian budget revenues, so any prolonged drop in the oil price is likely to put upward pressure on the deficit. January-February energy revenues were down 3.7%, the ministry said last week.
Those oil and gas revenues exceeded the baseline forecast, the ministry said on Tuesday.
“But there are risks of their decrease due to the weakening price situation.”
Lower oil prices, budget constraints and a rise in bad corporate debt are among the top economic risks facing Russia, documents prepared for an internal government discussion showed last month, flagging a possible jump in U.S. and OPEC oil output as a notable concern.
OPEC and its allies including Russia, a group known as OPEC+, decided this month to increase output for the first time since 2022.
($1 = 85.8500 roubles)
(Reporting by Darya Korsunskaya and Alexander Marrow; Editing by Gareth Jones)
