Russia’s first-half budget deficit hits 5.7 trillion rubles as oil revenue shortfalls persist

Russia’s federal budget deficit narrowed to 5.7 trillion rubles, or 2.5% of gross domestic product (GDP), during the January–June period of 2026, according to preliminary budget execution data released by the Ministry of Finance on July 9. This contraction marks the first decline in the fiscal deficit since the beginning of the year. In June, the gap between expenditures and revenues decreased by approximately 5% month-on-month, shrinking by about 279 billion rubles. Despite this marginal improvement, the deficit remains 2.3 trillion rubles higher than the level recorded during the same period last year and stands roughly 50% above the 3.78 trillion ruble target projected for the full year of 2026.

Emil Ablayev, an expert at the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP), told the Vedomosti newspaper that the narrowing of the deficit was driven by the gradual fading of the front-loaded advance spending outlays made at the start of the year.

Budget expenditures rose to 3.56 trillion rubles in June, representing a 17.13% increase. Total spending in the first six months of the year reached 24.35 trillion rubles, up 16.1% compared to the same period last year.

The Ministry of Finance reiterated that the accelerated pace of spending was attributable to the early signing of contracts and advance payments made under specific budget items.

In contrast, budget revenues experienced a more subdued increase compared to expenditures. Total revenues in the first half of the year rose by 5.8% year-on-year to reach 18.6 trillion rubles. In June, however, revenues surged by 25.85% year-on-year to 3.82 trillion rubles.

Non-oil tax revenues accelerate

Ablayev noted that the acceleration of non-oil and gas revenues played a key role in narrowing the budget deficit. The year-on-year growth rate for these revenues rose from just over 12% in the January–May period to 16.3% in the January–June period. Non-oil and gas revenues reached 14.96 trillion rubles in the first half of the year. In June, these revenues increased by 26.75% year-on-year to 3.1 trillion rubles.

According to Natalya Milchakova, Chief Analyst at Freedom Global, this growth was driven by the increase in the VAT rate effective January 1, along with prior hikes in personal income tax for high-income brackets and corporate income taxes. VAT revenues rose by 22.6% to 8.58 trillion rubles in the first six months of the year.

Ablayev pointed out that VAT is the tax category most sensitive to domestic demand, consumption, and imports, indicating that the increase reflects sustained domestic demand.

Ablayev also stated that improvements in tax administration and a reduction in the shadow economy supported this positive trend. He added that due to the strong performance of the ruble in the second quarter of 2025, import-related VAT revenues had a more limited negative impact on a year-on-year basis.

According to experts, the trajectory of non-oil and gas revenues in the second half of the year will depend on a slowdown in consumer demand, import volumes, the ruble exchange rate, and the tax performance of non-oil exporters.

Sergey Klisenko, General Director of the NRA Rating Service, projected that the growth rate of non-oil and gas revenues could slow from the 16% level recorded in the first half to a range of 12% to 14%. However, he noted that this would still be sufficient to meet or even exceed the targets set for 2026.

Oil revenues recovered in June

According to Klisenko, the budget surplus in June stood at approximately 280 billion rubles, largely driven by the strong performance of oil and gas revenues.

These revenues rose roughly 65% above the January–February average. The analyst attributed this increase primarily to the elevated level of Russian oil prices in May.

Oil and gas revenues in June rose by 4.7 billion rubles compared to May, reaching 683.6 billion rubles. However, the cumulative total for the first half of the year remained at 3.66 trillion rubles, representing a 22.7% decline compared to the same period last year.

Ablayev stated that the primary reasons for the first-half decline were a strong ruble, delayed tax collection effects, and the structural composition of the revenues.

Klisenko calculated that while the budget projections assumed an average exchange rate of 92.2 rubles per US dollar, the actual average for the first half of the year remained at 77.2 rubles, depriving the budget of 1.5 trillion to 2 trillion rubles in oil and gas revenues.

Oil and gas prices, which had spiked in the spring due to the conflict between the US and Iran and the subsequent closure of the Strait of Hormuz, declined again during the summer months.

According to Ministry of Economic Development data, the average price of Urals crude was $44.59 per barrel in February, rose to $94.87 in April, fell to $86.52 in May, and dropped to $63.52 in June.

Ablayev noted that oil and gas revenues could show a noticeable improvement in July as additional income tax from the second quarter is reflected in the budget. Nonetheless, he cautioned that year-end performance would depend on oil discount levels, demand for Russian crude, the ruble exchange rate, and developments in the domestic fuel market, adding that rising refinery subsidies and damper payments could limit revenue growth. The expert expects year-end oil and gas revenues to exceed 2025 levels but remain below budget targets.

Experts expect year-end deficit to exceed targets

Ablayev stated that budget execution remains under pressure, with expenditures running significantly higher than last year and the deficit exceeding initial forecasts. He estimated that the year-end deficit could reach 3% to 3.5% of GDP, or approximately 6.5 trillion to 7.5 trillion rubles, which would require deviations from the fiscal rule and increased borrowing.

Rodion Latypov, Chief Economist at VTB Group, projected that the main reasons for exceeding the planned 3.8 trillion ruble deficit would be an estimated 1.5 trillion ruble shortfall in oil and gas revenues due to the strong ruble, alongside potential spending overruns. Excluding potential additional spending increases, Latypov expects the year-end deficit to be around 5 trillion rubles.

Milchakova stated that the budget deficit at the end of the year would most likely remain around 2.5% of GDP, driven primarily by weak oil and gas revenues and anticipated increases in public spending—particularly due to the fuel crisis, refinery subsidies, and damper payments.

Klisenko, meanwhile, estimated that the deficit would reach 2.5% to 3% of GDP, amounting to approximately 6 trillion to 7 trillion rubles.

Ablayev noted that a high budget deficit supports domestic demand, making a rapid slowdown in inflation more difficult, though certain mechanisms, such as damper payments, limit price pressures specifically within the fuel market.

Klisenko remarked that the rise in the budget deficit from 1.6% to 2.5% of GDP is not critical and that its impact on inflation does not exceed 1 percentage point.

Latypov argued that the budget’s impact on the money supply and total nominal demand is more accurately measured by the change in net claims on public administration, rather than the federal budget deficit itself.

He highlighted that this indicator has increased by approximately 3 trillion rubles since the beginning of the year, remaining significantly lower than the accumulated budget deficit.