Russia may revisit limits of budget rule to enable higher spending

Russia will need to adapt its budget rules to cope with increased expenditure, Economy Minister Maxim Reshetnikov said on Friday, as officials publicly debate how best to fund fighting in Ukraine while revenues are squeezed by sanctions.

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Faced with a budget hole of $42 billion so far this year, Russian officials have acknowledged the need for more efficient budget spending, but clashed over the prudence of further increases in the tax burden.

Speaking at an event on the fringes of Russia’s flagship economic forum in St Petersburg, Reshetnikov rekindled the debate, saying that spending cuts were the government’s first option to finance the state’s growing needs.

“Obviously, the second source we will be discussing heavily is again the budget rule,” Reshetnikov said. “We will … come back to it because we cannot go further with the parameters we agreed a year, a year-and-a-half ago.”

Russia’s budget rule, which diverts oil revenues above a threshold into its wealth fund, was suspended in early 2022 as the West imposed sweeping sanctions against Moscow over the conflict in Ukraine.

It was restored this year but with modified rules that raised the threshold price to $62 to $63 per barrel, higher than the spot price for Russia’s main Urals crude export under price caps and sanctions.

Reshetnikov said raising taxes would be a last resort.

“It is pointless to try to take more from business or the economy than it can afford,” Reshetnikov said.

“We don’t want to adjust the budget rule as a whole for now, but if we see the need to adjust budget spending, then some temporary deviations may be possible this year,” Finance Minister Anton Siluanov said in an interview with RBC TV.

“In this year’s budget, and (the next three-year budget plan) we will see an increase in expenditure on national defense and security,” said German Gref, the chief executive of Sberbank. “There are no particular alternatives here.”

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