russia Is on the Verge of an Economic Crisis

Next week, the rf’s state duma will consider the government draft law on revising the federal budget figures. The main reason for the urgent action is the huge imbalance between the revenue and expenditure sides of the budget.

The intensification of negative trends in the economy of the rf is the result of a significant excess of expenditures over revenues, primarily due to the need to feed the blood-thirsty machine of the war against Ukraine.

Due to the imbalance, the rf’s government is forced to revise the federal budget for 2025 to increase its deficit by 250 % (from 12 to 42 billion US dollars). At this, the ministry of finance of the rf declares the unchanged forecasted GDP growth rate of 2.5 %, explaining its logic by the expected “increase in non-oil and gas revenues”.

In reality, this means the unprecedented in history of modern russia increase in tax pressure on business. To normalize the situation in the economy, the rf’s government has planned to increase revenues from personal income tax by 180 %, from corporate income tax – by 110 %, and from value added tax – by 17 %. At the same time, up to 30 % of small and medium-sized businesses in russia are already on the verge of bankruptcy. By the end of this year, this figure is expected to increase to 50 %.

According to the statement of minister of finance of the rf a. siluanov, “the priorities of the budget of the rf remain unchanged... all the tasks of national development will be fulfilled regardless of external conditions and factors...” However, the minister of finance keeps silence about the fact that the revenue side of the rf’s budget depends on russian oil exports by more than 30 %. In the first quarter of 2025, Urals crude oil lost significantly in price.

Today, purchases of russian oil in the ports of Primorsk and Novorossiysk fluctuate at the level of 47-49 USD for a barrel, while the budget was based on a price of USD 69.7 a barrel. Therefore, the decline in oil and gas revenues in annual terms could be up to 30 %, or $30-40 billion, which is actually equal to the budget deficit for this year.

In the context of manipulating official statistics, the situation with inflation is similar. The russian government sets the rate at 7.6 %, while we estimate that real inflation in russia is already exceeding 20 %.