Russian budget starts suffering from shortage of oil and gas revenues

The Russian budget will experience shortages of oil and gas revenues due to sanctions and decreasing prices on raw materials even in the event of the moderate weakening of the ruble.

"In the context of sanctions pressure on Russia and a gradual cyclical decline in world commodity prices, there is a possibility that oil and gas revenues will remain below the base level for a long time, even against the backdrop of the moderate weakening of the ruble,” the Bank of Russia said in the draft Guidelines for State Monetary Policy for 2024-2026.

If this scenario materialises, the implementation of the fiscal rule in its current form will be in jeopardy and the National Welfare Fund (NWF) will start losing too much of its assets, the Central Bank added. It is important to carefully monitor the risk of exhaustion of the liquid assets of the NWF when planning medium-term budget policies.

The Central Bank proposed raising taxes in the oil and gas sector to avoid the above-mentioned problems and replenish the National Welfare Fund.

In July, the Finance Ministry presented a plan to adjust tax parameters in the oil industry to increase budget revenues. In particular, payments to oil workers are to be halved by the end of 2026. The increased MET (mineral extraction tax) on oil is to be extended for the same period.

In addition, starting from 2024, the Ministry of Finance will change the methodology for determining the price of oil, on the basis of which taxes are calculated. The new calculation will maintain the level of payments to the budget, even if oil companies income drops.

According to the Ministry of Finance, Russia's oil and gas revenues fell to 526.8 billion rubles, which marked the lowest level since February.

Russian government hopes for oil revenues to increase

The Russian government hopes for oil and gas revenues to grow, Prime Minister Mikhail Mishustin said at a meeting on economic issues, RIA Novosti reports.

Oil and gas revenues increased by five percent in annual terms as of last month, Mishustin said. "We expect them to grow in the coming months,” the prime minister said adding that non-oil and gas revenues to the budget increased by almost 20 percent in the first seven months of the year.

In January-July 2023, the Russian budget deficit reached 2.81 trillion rubles, or 1.8 percent of GDP, against the planned level of 2.9 trillion rubles for the whole year. Budget revenues for this period decreased by 7.9 percent in annual terms to 14.525 trillion rubles. At the same time, oil and gas revenues decreased by 41.4 percent — to 4.19 trillion rubles.