Russia Ramps Up Fiscal Spending To Blunt Economic Blowback From Ukraine War

Now that Emmanuel Macron has been ensconced in the Elysees Palace for another five years, Europe is moving to ‘punish’ Moscow (and its own people) by trying to wean the Continent off of Russian natural gas and oil (something that’s easier said than done). But in defiance of the threatened cash crunch, the Russian government is taking some cues from West: to wit, the Kremlin has assembled an economic relief package worth tens of billions of dollars to help shield the country’s people, and its businesses, from the impact of sanctions.

According to WSJ, since the start of the invasion, Putin has ordered several rounds of emergency increases in payments to pensioners, state workers and the indigent and needy to compensate for the surging inflation that has battered Russia’s economy.

He has also backed state-subsidized loans to companies battered by sanctions, providing a lifeline to factories that have halted production because of a lack of imported components – especially microprocessors and chips.

So far, the impact on Russia’s finances has been less intense than many probably had anticipated. During the first full month of the conflict, Russian federal government spending climbed 37% from the prior year, driven mostly by the cost of the war.

But to help offset these rising costs, oil and gas revenues more than doubled in ruble terms over the same period, nearly compensating for the entire increase in spending.

“The Russian government has plenty of money, because it gets a huge amount of income from oil and gas, which are at very high prices,” said Natalia Zubarevich, a Moscow-based economist. “It has enough money for both defense and supporting the population.”

So far at least, Russian authorities haven’t provided a total price tag for the relief efforts or detailed how the money will be spent. Finance Minister Anton Siluanov said last month that the initial anti-crisis measures would cost more than 2.5 trillion rubles, or $35 billion, once both spending and tax breaks are factored in.

Another top official, First Deputy Prime Minister Andrei Belousov, has said that the authorities could provide up to 8 trillion rubles (or $112 billion) of credit to support the economy, chiefly through subsidized mortgages and business loans.

Thanks to its sovereign wealth fund, Russia has plenty of buffer capital in reserve (despite the West’s decision to seize hundreds of billions of foreign reserves belonging to Russia’s central bank).

As one Twitter user pointed out, even after all these expenditures, Russia’s fiscal position will still be more solid than that of the US:

Russia is in better fiscal position than the US right now

Reality

— Richard “Dick” Whitman ∞/21M 🇺🇸 (@DWhitmanBTC) April 29, 2022