According to preliminary estimates of the Ministry of Finance, the budget deficit at the end of 5 months of 2023 amounted to Rb 3.4 trillion. Alexey Vedev, Doctor of economic sciences, Head of the Financial Studies Department at the Gaidar Institute, explained in an interview to Invest Foresight whether the planned target of 2% of GDP will be maintained and how to deal with the state budget deficit.

– Alexey Leonidovich, does the budget deficit of Rb 3.4 trillion for the period from January to May really seem huge?

– In fact, it is not much, I would even say just a little. It is worth recalling the Maastricht agreement for eurozone countries, whereby the threshold deficit should not exceed 3% of GDP. In our situation, it is about Rb 4.5 trillion. In European terms, this figure is intrinsically safe; we are not even close to this very Maastricht norm.

– Well, this is safe for eurozone countries. What about us, Russia?

– In Russian terms, this is also safe. In the recent decades, the following challenge has been observed: the trade-off between economic growth and stability. The Ministry of Finance with its surplus budget is “overplaying” stability, as they say, to the detriment of economic growth. However, in my opinion, last year the economic policy associated with quantitative easing was one of the key factors proving that the Russian economy performed well: we dropped very little.

– If measured in percent, the financial authorities' goal for 2023 is a budget deficit of 2% of GDP. Why 2%? Why 1%, for example, is better, and why not go beyond the bar, say, 3% or even higher?

– These interest rate games ultimately affect the final demand. In all cases, if there is a budget deficit, it means that the Ministry of Finance is giving more money to the economy than grabbing.

– That’s good!

– Yes, this is good, because it means a certain stimulation of the economy. By all means, there are potential threats, and one of them is inflation. Although now, for example, we observe that there is a federal budget deficit of Rb 3.4 trillion, however, inflation is rather low. That is, below 3%, given that 4% is the target for the whole of 2023.

Is it bad if we exceed 3% according to Maastricht norm?

– I don't think it is bad. I think the main priority is economic growth and stability. Moreover, among the recommendations I would mention targeting of the exchange rate. In any case, we should not play with its artificial depreciation, as this is what spurs inflation. At the same time, targeting does not mean rigidly tying the exchange rate to certain benchmarks, but means that the exchange rate should be maintained within a specific corridor.

– Do you think it will be possible to keep within the declared 2%?

– This is absolutely impossible to predict. The fact is that federal budget revenues can be overall predicted one way or another. However, expenditures are more difficult to predict. All the more so, they are purely a “human” manual breakdown, as they say. Therefore, if the Ministry of Finance of Russia wants to meet the 2% federal budget deficit target, it will, definitely, meet it.

– The budget deficit is often presented as something what to fight. And what are Russia's current ways of fighting the growth of this deficit?

– First, it is worth noting that out of 200 countries, literally 1-3 have a surplus budget, while the rest feel comfortable having a deficit budget. And to fight this is very simple: you need to reduce budget expenditures.

– But it may have a negative impact on the economy, on Russian people, on business, may it?

– Indeed, it will reflect badly! These measures will mean underfunding of social programs, public investment, etc.