Russia borrows record $56bn in a month as sanctions batter Putin

Russia's budget deficit widened to hit record levels in December as sanctions hit oil export revenues and Vladimir Putin was forced to spend more on his invasion of Ukraine.

The fiscal gap reached a record 3.9 trillion roubles ($56bn) last month, according to Bloomberg calculations based on preliminary government data released on Tuesday.

That brought the full-year shortfall to about 3.3 trillion roubles, reversing a surplus in the 11 months of the year.

Finance minister Anton Siluanov later confirmed the full-year figure, which he said amounted to 2.3pc of gross domestic product, in televised comments at a government meeting.

The preliminary data showed spending for the year was up more than a third compared to pre-war forecasts.

Before Russia launched its invasion on February 24 last year, it had targeted a state budget surplus of 1pc of GDP for 2022.

As recently as September last year, Mr Putin was predicting a surplus of close to half a trillion roubles.

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Government expenditure in Russia is highly seasonal, with big spikes often coming at the end of the year, widening the deficit.

Income from high prices for oil, gas and other commodity exports in the first half helped offset rising spending, but that trend is now shifting.

Prices for Russian oil collapsed after the G7 nations imposed a cap aimed at limiting the Kremlin’s earnings.

Mr Siluanov acknowledged late last month that the Western price cap could widen the budget deficit this year.

Putin’s government has already started reducing or delaying non-war spending and is discussing higher taxes for some big companies to help cover the shortfall.

Russia has been forced to draw on its rainy day fund and borrow heavily at domestic debt auctions in recent months as it diverts more funds towards security and defence.

Despite the pressures, Russia’s fiscal position remains strong, thanks to years of strict policies leading up to the invasion.

The deficit this year is forecast at 2pc of gross domestic product, in line with the 2022 level. But the currency forecast is based on an oil price of $70 per barrel, about $20 above levels seen in December.

If prices for Russian crude remain at the December level, revenues will fall about 2.4 trillion roubles, or 1.6pc of GDP, below target this year, according to Alexander Isakov, economist at Bloomberg Economics.