OUR Russian economy decreased by only 2% in 2022. Instead of collapse, it entered an era of slow suffocation. Cut off from foreign markets due to Western sanctions, his government Vladimir Putin trying to finance a budget deficit that is considered manageable in peacetime. However, it will be difficult for him to meet this year’s funding needs, which could reach $90 billion. However, economic difficulties are pushing Russia further into the sphere of influence of its president. China, Xi Jinpingwhich is located in Moscow. According to official data, Russia’s budget deficit last year amounted to 2.3% of GDP. The Russian government’s forecast for 2023 is for a GDP reduction of up to 2%, leaving the state’s financing needs at about $40 billion. This amount would not have been difficult to repay under normal circumstances. Now after the invasion of Ukrainewhich brought a bunch of economic fines from the West, for Vladimir Putin is not normal.

Russia’s financial needs this year could be $90 billion.

Let’s start with the fact that the forecast looks optimistic. The government’s plans proceeded from the fact that in terms of oil trade, the price is calculated up to $70 per barrel. Taxes on energy exports account for more than 40% of government revenues. After the embargo, which European Union. Superimposed on black gold trading and tied to a G7 (G7) price ceiling, Russian oil prices fell below $50 a barrel in the first two months of the year. Now they cost about 46 dollars per barrel. The Institute of International Finance estimates that every $10 change in the price of a barrel brings in $15 billion a year to the state budget. Thus, in the first two months of 2023, the Russian government has already lost $5 billion. According to Russian economist Alex Isakov, this year’s budget deficit could reach $90 billion, equivalent to 4.5% of GDP, as falling oil prices are only part of the problem. Non-oil revenues such as VAT may stagnate due to the economic downturn while spending continues to rise. In addition to spending cuts, Moscow has three ways to finance its budgetary needs: issuing bonds, “financial repression” and using the resources of the National Welfare Fund. With bonds that are refinanced by the country’s banks through the Central Bank, there is a risk of inflation reheating. The second is a form of “financial repression” in which corporate money is pumped into the public treasury. New taxes for the country’s energy giants and major mining companies are in the works.

Banks, on the other hand, will be spared tax windfalls, but state-controlled ones like Sberbank or VTB will have to continue to pay out the hefty dividends the government has long demanded. Finally, Moscow can use the resources of the National Wealth Fund, which was created to channel part of the oil revenues into pensions. But, according to Russian economist Alexandra Prokopenko, the Fund’s dive will push Moscow even further into China’s economic sphere of influence, because last year Moscow increased the share of Chinese currency in the Fund’s assets to 60 percent.