Soaring government spending left Russia's budget deficit widening to 2.70 trillion rubles ($31.45 billion) in the first two months of 2025, the country's Finance Ministry said on Tuesday, adding that lower oil prices could squeeze Moscow's crucial energy revenues.
Spending has jumped in the last three years, with Moscow channeling funds into its military and defense sector following its February 2022 invasion of Ukraine. Russia's fiscal shortfall in 2024 was around $34 billion, or 1.7% of its gross domestic product (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 was 1.3% of 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 rubles, which is 30.6% higher year-over-year, the ministry's preliminary data showed, but it slowed from January to February.
Budget revenues were 5.34 trillion rubles, up 6.3% year-over-year, led by non-oil and gas revenues, which climbed 11.1% to 3.78 trillion rubles.
The increased spending is fueling 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 stick to its plans for the budget deficit.
In just two months, the government has spent almost one-fifth of the total planned 2025 expenditure of 41.47 trillion rubles, 41% of which will be spent on defense and security.
Moscow expects the deficit to narrow to 0.5% of the 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 ruble strengthening amid 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 Organization of Petroleum Exporting Countries (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.
