Russia’s Secretive 2024 State Budget

By Darya Korsunskaya and Gleb Bryanski

MOSCOW (Reuters) – Russia’s state budget for the upcoming year will witness a 25% increase in military spending and will be the most secretive in post-Soviet history. Nearly one-third of all spending will be closed to public scrutiny, according to calculations by Reuters.

The government plans to allocate 41.5 trillion roubles ($443.14 billion) for the next year, surpassing earlier estimates, with added revenue from higher corporate and personal income taxes.

From this total, only 28.4 trillion roubles are earmarked for specific items. The remaining budget, which includes 85% of national defence spending, is classified.

This year’s budget classified approximately 30% of all spending. Furthermore, the government has not published any budget execution data since May 2022 as part of measures to protect the economy from sanctions.

Evgeny Suvorov, an economist and author of a popular finance-focused Telegram channel, remarked, “Militarisation of the economy is continuing.”

The central bank was unexpectedly caught off guard by the new draft budget. In the coming weeks, it will analyze the budget data to determine potential effects on inflation, currently around 9%, ahead of its rate-setting meeting on 25 October.

Kirill Tremasov, outgoing head of the central bank’s monetary policy department, stated, “There are a number of unexpected elements in the budget that may require adjustments,” according to Interfax news agency.

Analysts noted the unanticipated hike in state-regulated utility tariffs by nearly 12%, which is double the initial expectation. Additionally, total public spending increased by 7.6% this year.

Inflationary Challenge

Alfa Bank’s Natalia Orlova indicated that rising tariffs could worsen inflation expectations, potentially accelerating inflation and prompting the central bank to adopt a stricter approach.

The government has acknowledged that its budget priorities will focus on military needs related to its “special military operation” in Ukraine, alongside social needs and technological advancement.

Despite the classification concerns, the government presented the draft budget as “balanced,” with a projected deficit of 0.5%, down from this year’s 1.7%. They plan to keep state debt below 20%, considered a safe threshold for the next three years.

The government also stated that the “budget rule,” which saves windfall energy revenue, will be fully restored by 2025. This rule had been suspended after the invasion of Ukraine in February 2022 and partially reinstated this year.

The Kremlin welcomed the draft on Tuesday, with spokesman Dmitry Peskov describing it as “carefully balanced and well-calibrated.”

Mainstream Russian media have not reported on military spending increases, instead focusing on social handouts. Analysts from state-controlled financial institutions have been cautious in their criticism of the draft budget.

When asked about the potential impact of spending increases on inflation, Rodion Latypov, chief economist at VTB, remarked, “I have the answer. I will not say it out loud.”

($1 = 93.6500 roubles)