As Russia navigates its budget and economic landscape, concerns are mounting that it might miss its 2024 revenue target. This could potentially force the country to increase business taxes, impacting both the national economy and the everyday lives of South Africans. In this analysis, we delve into the intricacies of Russia’s financial situation and explore the potential consequences of these fiscal challenges.
Revenue Projections and Economic Assumptions
Russia’s budget plans, published in September, are based on certain key assumptions. They anticipate oil prices to average $85 per barrel in the coming year, which is more pessimistic than what a Reuters poll forecasted. Additionally, they project a Urals price of $71.3, yet the Accounts Chamber, responsible for overseeing budget execution, has expressed concerns that this price might dip below $60 in the years 2024-2026.
The West, in its effort to limit Russia’s actions, aims to prevent the country from bypassing a $60-per-barrel price cap. For instance, Washington has recently imposed sanctions on owners of tankers carrying Russian crude priced above this level.
The Impact of a Stronger Rouble
Russia’s budget also hinges on the currency remaining weak. While this strategy may help in managing the deficit, it simultaneously fans inflation and erodes people’s savings. A stronger rouble increases the value of energy revenues received in dollars, which poses a significant challenge to the budget’s stability.
Finance Minister Anton Siluanov underlines the risks associated with a stronger rouble. He explains that even a one-rouble change in the exchange rate could lead to an increase or decrease in budget revenues of approximately 100 billion roubles.
Revenue Expectations and Economic Growth
Revenue expectations for the upcoming year are ambitious, with a projected 22.3% year-on-year increase to 35.1 trillion roubles, constituting 19.5% of the gross domestic product. However, analysts caution that these estimates might not be attainable, especially concerning oil and gas revenues.
Russia’s forecast for economic growth in 2024 stands at 2.3%, a significantly more optimistic figure than estimates from international organizations like the International Monetary Fund and the Bank of Russia. This divergence raises questions about the realism of Russia’s budget assumptions.
A Creative Budget Strategy
Russia appears to be employing a creative approach to achieving its strategic goals. The budget not only finances military expenditures but also aims to return to the budget rule framework by 2025. This requires depicting rapid income growth, which is precisely what the forecast tries to achieve.
However, this approach is not without risks. Experts predict an income shortfall of 1 trillion roubles, and there is a growing concern that lower-than-expected energy revenues or GDP growth could have severe consequences for the budget’s stability.
Challenges and Potential Solutions
Russia is walking a financial tightrope, and unforeseen developments could prove costly. A larger budget deficit might result in higher inflation and interest rates, which would impact the population and businesses. Taxes could also increase to fill the budgetary gaps.
Deputy Finance Minister Alexei Sazanov emphasized that tax tactics must become adaptive, reflecting the ever-changing fiscal landscape. This suggests that Russia might resort to new taxes, permanently increase VAT rates, or adjust its budget rule to allow for more spending of energy revenues.
One of the key unknowns for Russia’s public finances is the duration of the budget allocated for war. Prolonged military spending could set the country on an unsustainable path, which may have far-reaching implications for the national budget and taxation.
Russia’s economic and budgetary challenges in 2024 are multifaceted, and their implications extend beyond national borders. South Africans should keep a close eye on developments in Russia, as they could potentially impact the global economic landscape. As the country treads the fine line between ambitious fiscal goals and economic reality, the consequences of its choices will be felt not only within its borders but around the world.