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31 thoughts on “Econbrowser has moved to a new server

  1. Steven Kopits

    A month ago, the Russian government reported the federal budget deficit at 2.3% of GDP for 2022, suggesting that Russia was coping with the fiscal impact of the war rather easily. However, the annual numbers hid important trends. To begin with, the war started in late February, and as a result, Q1 financials were largely unaffected. Q2 saw high oil prices and stratospheric gas prices. By Q3, however, oil and gas prices were falling, and sales volumes were tapering. My earlier analysis of Q3 trend data suggested a 10% budget deficit at the time, but it was not clear whether this was in fact the case.

    The January fiscal data suggest the Russian budget is indeed under considerable stress. The Russian Ministry of Finance reported that, compared to January 2022, total federal government revenues are down 35%, and within this, oil and gas revenues are down 46% and tax revenues have fallen 28%. That would be bad enough.

    However, the spending side is also out of control, with January expenses up 59% on January 2023, in large part associated with keeping hundreds of thousands of troops armed and fed in the field. The result is a budget deficit running at a pace of 13.7% of GDP. That is very large for a country without access to global credit markets.

    Russia still has various bank reserves, some ability to raid the coffers of state-owned companies like Gazprom and Rosneft, and the balance of Russia’s sovereign wealth fund. This latter fund is reported to have a balance of $148 bn as of last month, that is, enough to cover half the deficit Russia would incur in 2023 if January’s deficit proves typical for the balance of the year. As a result, the sovereign wealth fund will likely be drawn down to near zero, if not in 2023, then likely by mid-2024. Putin’s reluctance to call another mobilization may be related to financial constraints, as conscripting half a million working age men and provisioning them in the field could only make the deficit that much worse.

    A recovering oil market may yet save Russia, but for the moment, oil prices remain restrained and the price cap appears effective. Without materially higher oil prices, Russia faces difficult fiscal conditions in 2023. By 2024, the situation is likely to be dire.

      1. Steven Kopits

        The January fiscal numbers are those published by the Russian MoF. The GDP numbers comes from the IMF October WEO. If I annualize the January numbers, then that produces a full year 2023 Russian federal budget deficit of 13.7% of GDP. So that’s just math from official Russian and IMF sources.

        Now, January may not be representative of full year numbers for many reasons, including seasonality, lumpiness in federal revenues or expenses, changes in oil prices, tax increases, spending cuts (or further increases), and economic performance, to name just a few.

        Having said that, you’ll recall that, when I asked Menzie to post Russian fiscal numbers, I wrote that my analysis of Q3 Russia numbers per BOFIT suggested a structural deficit in the 10%+ range of GDP. The January numbers are consistent with that view. Moreover, we might expect a country under heavy sanctions fighting a full scale war to be running a budget deficit north of 10% of GDP. So there is no huge surprise here.

        Still, there are many caveats and considerations here. Nevertheless, the plain vanilla read of the January numbers says the Russian budget is under considerable stress, and a deficit in the 10-15% of GDP range is entirely possible.

        As I write in my piece, fiscal considerations may be causing Putin to be reluctant to initiate a full round of incremental mobilization. With a wider mobilization, I think the deficit could be pushed closer to 20% of GDP.

        1. pgl

          “Now, January may not be representative of full year numbers for many reasons, including seasonality, lumpiness in federal revenues or expenses, changes in oil prices, tax increases, spending cuts (or further increases), and economic performance, to name just a few.”

          Yea – maybe you should look into this before just annualizing a number you do not understand. No other source has claimed a deficit that is more than a fraction of your figure. I wonder why.

          1. Steven Kopits

            No, every source is claiming the deficit is exactly what I say. I am the only one to have annualized it. Annualization is important because we are interested in the running deficit, not the historical deficit. When Putin is thinking about mobilizing 500,000 troops, he is not thinking about 2022 aggregates. He’s thinking about the situation today.

            Still, if you want to argue that the deficit is something else, knock yourself out.

          2. Moses Herzog

            @ Kopits
            “I am the only one to have annualized it” <<—-Doubtful

            Only your falsely inflated sense of ego would give you the idea that you are "the only one" to do that or similar such gauges of the Russian horizon. But what is very believable is that you are the only one to draw such a dumb conclusion from the annualized numbers. This seems to be a credible source. I am sure there are others.

          3. pgl

            Steven Kopits
            February 13, 2023 at 10:31 am
            No, every source is claiming the deficit is exactly what I say.

            Show us one credible source that says the Russian deficit in 2023 will be over 13% of GDP. Oh wait – you can’t. Move on troll.

          4. Steven Kopits

            By the way, countries can finance wars in quite extreme ways. People in WW1 and WW2 Germany by the end of the war were effectively starving. And yet Germany fought on. Russia’s a long way from that, obviously.

            I was alluding more to the notion that Putin would have to make difficult spending choices, that is, maintaining war funding, increasing taxes, or cutting social spending. Or printing money, which is the obvious choice. This is a man who ‘only travels by special armoured trains’ as he fears assassination. His options are dwindling by the day. The notion that this is a small, obscure war putting only minor demands on the Russian public — well, by 2024, that’s no longer going to be the case. The financial realities dictate that this will become a major war for the Russian people on the domestic front over the next several quarters. Will they continue to support a war that Russia could end today by leaving Ukraine?


          5. pgl

            From Moses interesting link:

            One of the freshest prognoses comes from economist Alexander Isakov and his colleagues at Bloomberg Economics. By their count, Moscow can comfortably keep the war going for at least three years, assuming the average price of Russia’s benchmark Urals crude doesn’t fall dramatically lower than $50 a barrel, price cap or not.

            Huh when I said Russia might have 3-4 years of available funding, little Stevie went on a unhinged tirade. Of course maybe Stevie is now forecasting oil prices near $25 a barrel. Oh wait – Stevie told Moses he thought oil prices would reach $200 a barrel. Yea – little Stevie just makes up numbers as he goes.

          6. pgl

            Stevie thinks every credible source agrees with him? Not economist Alexander Isakov and his colleagues at Bloomberg Economics. Who to trust – someone who actually understands the numbers or Stevie who has a talent for just making stuff up?

    1. Menzie Chinn

      From Prokopenko/Carnegie Endowment, 10 Feb 2023:

      …there is no point in guessing what the budget deficit will be at the end of this year based purely on figures for the first month. Last September, for example, the government and analysts expected the budget deficit to not exceed 1.5 trillion rubles—and then came the additional spending surge in December.

      For now, the hole in this year’s budget equals 2 percent of GDP. It already looks doubtful that everything will go as planned, but Russia’s reserves, combined with borrowing, will enable the country to cover a budget deficit for at least two more years.

      Even if there were to be a sharp shock to the budget, there would be no threat to military or social spending (together worth about 17 trillion rubles), which are protected and would be the last to see cuts. Their limits are calculated based on what budget revenues can be counted on, regardless of the situation on commodities markets (about 11.5 percent of GDP in 2023, or 17 trillion rubles).

      By the way, I don’t annualized the US budget deficit on the basis of, say, April’s numbers. And neither should you.

      1. Steven Kopits

        Q3 BOFIT numbers said essentially the same thing I said for January, as you’ll recall from my comment of a few weeks ago when I first suggested you take a look at Russia’s financials. But go ahead, explain to me a 1/3 drop in revenues and a 60% increase in spending as a one-off for Jan. 2023. I’m quite interested in your interpretation.

        And do you think Russia’s finances are recovering or deteriorating? I think they are deteriorating.

        But, hey, Menzie, why don’t you dig up the Russia federal budget numbers and make us a spreadsheet. If you’re so convinced of your position, it shouldn’t be hard to demonstrate that with H2 2022 monthlies yoy, per the January template.

    1. Steven Kopits

      The US finances wars with debt. Russia has limited options in that regard. Therefore, liquidating assets has some appeal. Russia’s wealth fund, as you point out, has about $150 bn in assets, including gold, which the Russians have been liquidating. They will be under pressure to liquidate the rest of it over the next 18 months or so.

      1. pgl

        “The US finances wars with debt. Russia has limited options in that regard.”

        This is a good point which Jonny boy seems not to understand. But – and it is big but – I do not see anyone claiming Russia’s government deficit is over 10% of GDP.

        1. JohnH

          So pgl is saying that the Russian Central Bank can’t just government debt like the Fed does, and like the Bank of England has done for centuries?

          And what about those foreign countries buying Russian oil and gas in rubles? Don’t they need to buy ruble denominated foreign reserves?

          Before you answer, consider how preposterously wrong lots of people here have been about the resilience of the Russian economy, eg. The ruble is rubble. Apparently the Cold War warriors here don’t know much about Russia and could care less. Personally I claim no special knowledge about Russia, but my BS monitor gets set off with irrational exuberance, like we saw a year ago, and I get increasingly sceptical about wishful thinking/propaganda posing as news—how many times were we told that Russia is running out of ammo and missiles? Countless.

          Gilbert Doctorow has an interesting piece describing the degradation of Russian studies at Columbia and its disconnect from reality.

          I suspect the same dynamic is at work in economics given the nonsense published a year ago.

          1. Moses Herzog

            “So pgl is saying that the Russian Central Bank can’t just government debt like the Fed does, and like the Bank of England has done for centuries?”

            You have to have private entities or private actors that are willing to purchase the bonds.


            Human beings have this strange habit. They don’t like holding assets that have a high probability of having zero value upon maturity, or even not making interest payments. Walk down to the nearest federal prison. Have the prisoners write out some IOUs/”Bonds” and then go to the entrance of the nearest upscale steak house and see if you can get the customers walking into the steak house to give you $200 cash for a $200 IOU/Bond from one of the prisoners. JohnH, a “strange” reality of life will hit you at this point.

          2. pgl

            Maybe Putin will run out of troops before his government runs out of money:


            Russia ‘loses entire elite brigade after 5,000 troops die in battle’
            The number of those ‘taken out’ includes members of the elite 155th naval infantry, which stormed the Donetsk region in late January. Ukrainian soldiers also killed the brigade’s command staff and destroyed 130 pieces of equipment, including 36 tanks.

            Word of advice Jonny boy – maybe you need to get your rear end out of the Kremlin before Putin turns on his pet poodle.

          3. Steven Kopits

            John –

            Russia certainly cannot access global credit markets like New York, Tokyo or Frankfurt. It can probably borrow here and there in the $10s of billions, but no bank with international connections will lend to the Russians. The annual deficit, based on January numbers, would come in around $300 bn. I think it will be north of that. Russia can borrow domestically, and has and will. But the numbers are pretty large compared to the Russian economy. The Chinese, can of course, lend to the Russians, just by running receivables against goods delivered. But how deep does Beijing want to get into that game?

            Russia does have some options, but they are limited, and will prove expensive.

          4. baffling

            “Before you answer, consider how preposterously wrong lots of people here have been about the resilience of the Russian economy, eg. ”
            actually, those that are wrong believe that the Russian economy is not being negatively impacted. it is taking a huge hit. and the economy is losing much of its young and intelligent workers overseas. the exodus of tech from Russia is astounding. this will hamper their recovery for a decade or longer.

          5. JohnH

            Sorry, Moses. The Russian Central Bank has already bought government bonds from the Russian bond market…just like the Fed does in the US bond market.

            The Bank of England has bought offered to buy bonds directly from the UK government.

            I suspect that the tradition of financing the government by issuing debt to the market has more to do with the perks, privileges, and power of the banksters, who want a piece of the action, than it does with economics per se. Oh, I know, people will argue that governments will get reckless without market discipline, which is speculation. The markets have yet to discipline Japan’s massive debt…because the market knows that they can count on BOJ to buy the bonds. In effect, the BOJ finances the Japanese government directly, adding a middleman purely for appearance sake.

            Russia could certainly do the same, except for one problem—Putin doesn’t like debt.

          6. Steven Kopits

            If VAT and income tax are down around 30%, then we can assume the Russian tax base has been adversely affected. A lot of those who left will have been high earning types linked to the international sector, eg, IT, consulting, finance, etc. So, yes, Baffs, I agree with you.

    2. pgl

      Two things:

      (1) Stevie had a point with this general statement “That is very large for a country without access to global credit markets.” The US does have access to global credit markets. Big difference.

      (2) On the other hand, his “that is very large” is pure BS as most accounts of Russia’s fiscal deficit are far, far lower than his made up 13% of GDP.

      In other words – do not take his musings seriously as he just makes up numbers as he goes.

    3. pgl

      “Thus, in January, the NWF grew by 373 billion roubles. The fund’s liquid assets amounted to 6.3 trillion roubles, or $91 billion, which corresponds to 4.2% of the GDP projected for 2023,” Forbes wrote. Background: In January, there was a deficit of 1.76 trillion roubles (approximately US$25 billion) in the Russian federal budget. The country’s oil and gas revenues amounted to 426 billion roubles (over US$6 billion), down 46% from January 2022.

      So putting these figures together, Russia can run such deficits for 3 to 4 years. Stevie on the other hand is claiming its deficit is FIVE times larger than what you source notes. If he were correct, Russia would be out of funds entirely by the end of the year. But let me repeat Stevie is just making up enormous numbers which are not supported by any other source that I am aware of.

      Look – I do not find your usual sources to be ever credible but then we all know Stevie writes a lot of stuff that just is not true either.

      I could ask you two clowns to collaborate and put together something that makes sense. But maybe we should wait for our host to intervene.

      1. Steven Kopits

        $91 bn liquid assets / $25 bn deficit in January alone. That’s not four years, it’s four months, of cover.

        1. pgl

          It seems economist Alexander Isakov and his colleagues at Bloomberg Economics does not exactly agree with your totally made up BS. Now if oil prices fall to $40 a barrel, Russia will have a problem. But then you were telling us oil prices would rise to $180 a barrel.

          Yea Stevie – just incoherently making up BS as you go can come back and bite you.

          1. Steven Kopits

            Russia’s average oil revenues were $56 / barrel from 2015-2021. It’s earning about that on the Urals side now. Russia had a modest budget surplus, as I recall, over that period.

            Now it’s fighting a major war, struggling with sanctions, and dealing with losing perhaps one million workers who either fled the country or are fighting in Ukraine. And it has to finance a major war. And you think the budget is going to look like the 2015-2021 period?

            I don’t think so.

          2. Steven Kopits

            So, $40 is about $14 below the current Urals price. What would be the impact?

            $14 / barrel * 7.5 mbpd crude and refined product exports * 365 days = $38 bn. You think Russia’s finances are $38 bn from the edge? The deficit was $25 bn in January alone.

            Do the math, and Russia’s breakeven oil price in January was around $165 / barrel.

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