Russia faces $29 billion budget deficit as oil revenues and tax collections plunge

The AC’s preliminary estimate puts budget revenues at 38.2 trillion rubles (roughly $525 billion) for 2026, in line with the revised cash plan (as of April 1), but 2.1 trillion rubles ($28 billion) short of the original budget law.

Oil and gas revenues are projected at 7.8 trillion rubles ($107 billion), while non-oil and gas revenues could reach 30.3 trillion rubles ($416 billion), according to auditors. Both figures are approximately a trillion rubles ($13 billion) lower than projected: oil and gas revenues are down 1.1 trillion rubles (12.2% or $15 billion), while non-oil and gas revenues are down 1 trillion rubles (3.3% or $13 billion).

The shortfall in oil and gas revenues was driven by falling oil prices and the ruble appreciation. Oil and gas revenues for the quarter totaled 1.44 trillion rubles ($19 billion), or just 16.2% of the 8.9 trillion rubles ($122 billion) projected for the year. The budget was calculated based on an average Urals oil price of $59 per barrel and an exchange rate of 92 rubles to the U.S. dollar, but the first-quarter average amounted to $54.2 per barrel and 78.2 rubles per U.S. dollar, respectively.

The strong ruble caused a drop in several non-oil and gas revenue sources, including VAT on imports and customs duties. Overall non-oil and gas revenues are higher than last year but still behind projected targets – reaching only 21.9% of the estimated annual plan for the quarter – despite recent one-off revenues and tax hikes.

Non-oil and gas revenue growth was not enough to offset the decline in oil and gas revenues, Freedom Finance Global analyst Vladimir Chernov noted. “The budget’s fiscal cushion has narrowed, and its dependence on oil and gas revenues is once again clearly visible,” he added.

Following the outbreak of the war in the Middle East, oil prices surged to $77 in March, $94.50 in April, and $86.50 in May. Despite this surge, Russian budget oil and gas revenues for the first five months of the year remained 30% below last year's levels. Meanwhile, the announcement of a memorandum between the U.S. and Iran drove the price of Brent crude oil back below $80 per barrel, while the ruble has remained strong.

In response to these market shifts, the Russian Ministry of Economic Development lowered its forecast for the average annual exchange rate to 81.5 rubles per dollar in May, while a June Central Bank consensus survey of private analysts dropped even further to 78.1 rubles. According to Emil Ablaev, an economic expert at the Russian Government Analytical Center, the exchange rate factored into this updated government forecast alone could slash federal budget revenues by 1.6-1.7 trillion rubles (up to $23.3 billion) compared to original state plans.

The Accounts Chamber highlighted additional risks, including an under-collection of corporate income tax; while the government budgeted for a 98.5% collection rate, it achieved only 96.8% during the first two months of the year.

Meanwhile, federal spending continues to climb. As of April 1, the budget estimate increased by nearly 500 billion rubles ($6.8 billion), bringing total projected expenditures to 44.6 trillion rubles ($612 billion), according to the Accounts Chamber. At the St. Petersburg International Economic Forum, Vladimir Putin and Finance Minister Anton Siluanov warned that the annual budget deficit would surpass the initially planned 3.8 trillion rubles ($52.1 billion). By the end of the first five months, the deficit had already breached 6 trillion rubles.

Chernov expects the Ministry of Finance to increase its federal bond issuance and enforce a more cautious spending approach through the end of the year. However, if oil and gas revenues fail to recover while spending remains high, the annual budget deficit could significantly exceed official targets, potentially triggering a 10%-15% ruble depreciation. Gazprombank analysts predict the full-year budget deficit could widen to 5.5-6 trillion rubles (up to $82.4 billion).

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