What sanctions? Russia ends 2017 with minimal budget deficit, bigger reserves

Figures just released show that Russia ran a federal government deficit in the period January to November 2017 which was a mere 0.7% of GDP, substantially less than last year

According to a preliminary estimate, Russian budget deficit contracted 3.6 times year-on-year in January – November 2017 and amounted to 532.4 bln rubles ($9 bln) or 0.7% of GDP, the Finance Ministry said on Wednesday.

For comparison, federal budget deficit totalled 1.8 trillion rubles ($30.6 bln) or 2.4% of GDP.

Russian budget expenditures totalled 14 trillion rubles ($237.9 bln) and revenues amounted to 13.4 trillion ($227.8 bln) in the reporting period.

A budget deficit of 0.7% of GDP is economically speaking insignificant, and one which an economy like Russia’s can easily cover.

As it happens Russia’s consolidated budget – ie. the Russian authorities’ total income and expenditure across the whole country, which is greater than the income and expenditure of the central government covered by the federal budget – is currently running a surplus.

What makes these figures for me especially interesting is that the end of 2017 was supposed to be the point when – if one believed what Western commentators were saying a year ago – Russia would exhaust its Reserve Fund and start to run out of money.

Here is a selection of some of the articles making this bold claim, which I have found following a Google search which lasted all of five minutes

Russia ‘could run out of cash reserves over the next year’   (Independent 17th September 2016)

Russia is running out of money  (Deutsche Welle 14th April 2016)

Exclusive: Russia to empty one of its sovereign funds next year – ministry proposal  (Reuters 5th July 2016)

Russia Could Run Out Of Money By 2017 (YouTube 6th December 2016)

Behind these dramatic claims were assumptions that Russia oil prices would remain low and that Russia would continue to run big budget deficits into the indefinite future and would once its Reserve Fund had run out find itself unable to borrow money to cover its deficits because of the sanctions.

In the event oil prices have somewhat risen, the Russian budget deficit – never very large – has now fallen, the consolidated budget is now in surplus, the size of the Reserve Fund in recent months has actually increased (it now stands at roughly $17 billion), and Russia’s international reserves have risen from a low of roughly $350 billion in 2015 to $430 billion now.

The scaremongering about Russia running out of money in 2017 was to be clear always complete nonsense.

Even if the budget deficit had remained indefinitely at 2016 levels (which given Russia’s fiscal conservatism is inconceivable whatever might have happened to oil prices) and even if the Reserve Fund had been completely depleted by the end of this year – as some Russian officials did in fact say in 2016 might be the case – and even if Russia were indeed barred from all foreign borrowing – something which I doubt is legally possible without a resolution of the UN Security Council and which is anyway probably technically impossible – the Russian government would still have had no difficulty raising all the money it needed to cover its deficit by borrowing in roubles on Russia’s own domestic financial markets (see my lengthy discussion of the Russian government’s borrowing options here).

What is extraordinary is not that Russia has not run out of money.  It is that supposedly serious people in the West ever thought it would.

The dismal truth is that no economic catastrophe in Russia is too farfetched to prevent some people in the West predicting it, whilst there is never any penalty for these people when regular as clockwork the predicted economic catastrophe fails to happen.