Russian budget's contribution to inflation expected to be neutral starting in 2025 - Deputy Finance Minister

MOSCOW. Oct 2 (Interfax) - Russia's budget will be structurally balanced starting in 2025 and its contribution to inflation is estimated to be neutral, Deputy Finance Minister Vladimir Kolychev said.

"Starting next year - this was the program already outlined three years ago - we're returning to a structural balance. This means that the contribution of the budget, federal foremost but also the budget system as a whole, will be neutral in terms of forming monetary aggregates, meaning it will not generate inflation," Kolychev said at a meeting of the State Duma Financial Market Committee.

"This is where we expect that we, as the government, as the budget will make the contribution within our power to stabilizing inflation. Accordingly, this will sooner or later lead to the reduction of interest rates and costs, which are factored into financing," he said.

He also said inflation is of a monetary nature. "If monetary indicators grow faster than real indicators, the difference between them will, in one way or another, spill out in price growth, or in the consumer price index, or in other price indicators, on the real estate market and so on," Kolychev said.

He recalled that the budget factor has played a substantial role in the formation of monetary aggregates in recent years, far greater than before 2022.

"This is because spending increased dramatically. Accordingly, it was de facto financed primarily by the expansion of the budget deficit. Previously saved funds - additional oil and gas revenues, the [National Welfare Fund] and so on - were used for this. Essentially, the budget was structurally unbalanced, there was a deficit that made a certain contribution to the expansion of monetary aggregates," Kolychev said.

It was reported earlier that Russia's federal budget deficit is expected to be 0.5% of GDP in 2025, 0.9% of GDP in 2026 and 1.1% of GDP in 2027. The Finance Ministry recently raised its projection for this year's deficit to 3.296 trillion rubles or 1.7% of GDP, from 2.120 trillion rubles or 1.1% of GDP.