Russia Preps for ‘Tough’ 2023 as Budget Deficit Set Amid War

Russia’s 2023 budget will impose financial challenges amid a deficit, First Deputy Prime Minister Andrei Belousov said Tuesday.

The deficit is due to both the war in Ukraine, now entering its 11th month, and the sanctions imposed by the United States and other Western pro-Ukraine countries.

Top Russian officials expressed concern in June due to sanctions. The Institute of International Finance, a banking lobby group, predicted then that Russia’s economy would shrink 15 percent by year’s end and an additional 3 percent in 2023.

“The next year will be rather tough for us in terms of finance,” Belousov told the Rossiya-24 TV network. “That is, we set the deficit budget for the next year; we understand amounts of borrowing.

“All of that was agreed with the Bank of Russia, and this task, this financial framework—it exists, and [it] exists in a fairly rigid format. This rigid format anticipates strict prioritization of expenses and projects,” he added.

An oil price cap imposed December 5 by the Group of Seven (G7) countries, in cohesion with the European Union and Australia, is also reportedly causing an economic pinch due to lack of export income.

Finance Minister Anton Siluanov said Tuesday that Russia’s budget deficit could actually exceed the predicted 2 percent, Reuters reported, imposing additional financial uncertainty amid continued costs spent toward military operations against Ukraine.

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

He also alluded to changing macroeconomic conditions, citing rising inflation and more resources required to support Russian families.

Russia’s Deputy Prime Minister Andrei Belousov, left, attends the 29th APEC Economic Leaders Meeting during the Asia-Pacific Economic Cooperation summit in Bangkok on November 19. Russian President Vladimir Putin, right, delivers a speech during the Informal Summit of the Commonwealth of Independent States on December 26 in Saint Petersburg, Russia. Belousov on Tuesday announced an expected Russian budget deficit for 2023.
JACK TAYLOR/POOL/AFP via Getty Images; Contributor/Getty Images

RIA Novosti reported last week that Russian Deputy Prime Minister Alexander Novak said Russia may cut oil output by 500,000 to 700,000 barrels per day—or about 5 to 7 percent of its total oil production.

“Under the terms of the decree, there is a ban on supplying oil and oil products to the countries and entities that demand compliance with the price cap introduced by the EU,” Novak said.

Nicholas Farr, emerging Europe economist at Capital Economics, told CNBC that it may be “too early to fully assess the impact” of the oil price cap that went into effect earlier this month.

However, he said signs suggest that Russia’s economy “is starting to feel the pinch.”

“High-frequency data show that Russian oil exports have fallen since the sanctions were introduced and the spread between Brent crude oil prices over Urals oil prices widened to a six-month high [last] week,” Farr said.

Newsweek reached out to the Russian Federation and to the EU for comment.

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