🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Russia's military-focused 2025 budget shrouded in secrecy

Published 10/01/2024, 10:19 AM
Updated 10/01/2024, 10:24 AM
© Reuters. FILE PHOTO: Russian army MiG-29 jet fighters of the Strizhi (Swifts) and Su-30SM jet fighters of the Russkiye Vityazi (Russian Knights) aerobatic teams fly in formation during a flypast and a military parade on Victory Day, in Moscow, Russia, May 9, 2024.

By Darya Korsunskaya and Gleb Bryanski

MOSCOW (Reuters) - Russia's state budget for next year, which includes a 25% hike in military spending, will also be the most secretive in post-Soviet history, with almost one-third of all spending closed to public scrutiny, according to Reuters calculations.

The government plans to spend 41.5 trillion roubles ($443.14 billion) next year, more than initially expected, with additional revenues coming from hikes in corporate and personal income taxes.

Of that headline figure, the draft budget documents properly earmark only 28.4 trillion roubles for targeted items. The rest of the budget, including 85% of all national defence spending, is classified.

In this year's budget, about 30% of all spending was classified. The government also stopped publishing all budget execution data in May 2022 as part of classification measures aimed at shielding the economy from sanctions.

"Militarisation of the economy is continuing," said economist Evgeny Suvorov, author of a popular economy-focused Telegram channel.

The new secretive draft budget even caught the central bank by surprise. In the coming weeks it will analyse the data to establish its potential impact on inflation, currently running at about 9%, ahead of its rate-setting meeting on 25 October.

"There are a number of unexpected elements in the budget that may require adjustments," Interfax news agency cited the outgoing head of the central bank's monetary policy department, Kirill Tremasov, as saying.

Analysts say one of the surprises is a higher-than-expected hike in state-regulated utility tariffs by almost 12%, twice as much as initially planned.

Another surprise, according to analysts, is the increase in this year's total public spending by 7.6%.

INFLATIONARY CHALLENGE

"The increase in tariffs is likely to worsen inflation expectations, which will contribute to accelerating inflation and will require greater strictness from the central bank," said Alfa Bank's Natalia Orlova.

The government has acknowledged that the needs of what Moscow calls its "special military operation" in Ukraine and support for the military will remain the budget priority along with social needs and technological development.

The government presented the draft budget as "balanced", with the deficit falling to 0.5% against this year's projected deficit of 1.7%, and state debt remaining below the 20% mark, seen as safe by the government, for the next three years.

It also noted the full restoration from 2025 of the "budget rule," a mechanism whereby windfall energy revenues are set aside, saying this would enhance economic stability in the longer term.

The rule was suspended in the aftermath of Russia's invasion of Ukraine in February 2022 and then restored in a truncated form this year.

The Kremlin welcomed the published draft on Tuesday.

"This is a carefully balanced, well-calibrated budget," Kremlin spokesman Dmitry Peskov said.

All mainstream Russian media have avoided reporting on the hike in the budget's military spending, focusing instead on handouts for vulnerable groups.

Analysts from state-controlled financial institutions refrained from criticising the draft - at least directly.

© Reuters. FILE PHOTO: Russian army MiG-29 jet fighters of the Strizhi (Swifts) and Su-30SM jet fighters of the Russkiye Vityazi (Russian Knights) aerobatic teams fly in formation during a flypast and a military parade on Victory Day, in Moscow, Russia, May 9, 2024. REUTERS/Shamil Zhumatov/File Photo

Asked about the likely impact of the spending hike on inflation, Rodion Latypov, chief economist for Russia's second-largest lender VTB, said: "I have the answer. I will not say it out loud."

($1 = 93.6500 roubles)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.