Russia’s budget deficit rose 40% in the first half of the year to 2.8% of gross domestic product, increasing pressure on public finances from the war in Ukraine. President Vladimir Putin said he did not consider this level a critical risk for the economy.
Speaking at the Eastern Economic Forum in Vladivostok on September 3, Putin said Russia had one of the lowest levels of public debt in the world. He described the budget deficit as manageable and said high borrowing costs should not excessively restrict businesses’ investments.
Official target set at 1.6%
The Russian government aims to keep the year-end budget deficit at 1.6% of gross domestic product. As the costs of the war in Ukraine have risen in recent years, the government has raised taxes and increased borrowing to finance military spending.
Deficit and inflation monitored ahead of rate decision
The widening budget deficit and new inflation risks are among the main factors being assessed by the Central Bank of Russia ahead of its interest-rate meeting next week. The policy rate currently stands at 14%.
Businesses have long urged the central bank to lower interest rates, while analysts expect the policy rate to remain at its current level. Putin also stressed that combating inflation risks was critical to monetary policy.
Annual inflation at 6.3%
According to data from the Ministry of Economic Development, annual inflation in Russia stood at 6.3% as of August 31.
In response to assessments that some businesses were unable to access credit, Putin said the government had developed multiple lending programs to support companies in a high-interest-rate environment.
