Russia’s large federal budget surplus begins to shrink

Despite the third-quarter reversal, the federal budget surplus for the last 12-month period still amounted to nearly 3 % of GDP. The turn reflects shifts in both revenues and expenditures. After having risen by 10 % in the first half of the year in nominal terms, budget revenues now rose by just about 2 % y-o-y. On-year growth in spending accelerated as expected to 16 % y-o-y in the third quarter, after scoring about 1 % in the first half.

Russian government sector budget balance, 2008−2019

Source: Ministry of Finance.

Budget revenues from oil & gas taxes went into a tailspin in the third quarter (down 20 % y-o-y) after posting large gains in numerous previous quarters. It was the first decline in oil & gas tax revenues since autumn 2016. Growth in other revenues accelerated and rose to 17 % y o-y for January-September. More of the gains came from improved tax collection rather than the impact from the VAT hike on January 1, 2019.

Defence expenditures, the sole government budget sector spending category funded entirely from the federal budget, fluctuates considerably within each year. Defence spending turned to sharp rise in the third quarter, lifting spending growth to about 5 % y-o-y for January-September.