How they're going to cover the budget gap is fairly obvious — the National Wealth Fund (NWF) is nearly empty, and the Ministry of Finance probably doesn't want to touch the last liquid 3 trln (though it may have to, for one final big spend). OFZ ceiling is also limited: the more debt issued, the more interest has to be paid later, and at current rates this is already very expensive — quoting RBC: "in the next three years state debt servicing costs will keep rising. In 2025 — 3.18 trln RUB, in 2026 — 3.48 trln, in 2027 — 3.59 trln." These are official forecasts, and they're already huge: 3.5 trln just on interest, and the actual numbers will likely be higher.
That leaves money printing, which will accelerate the already-high inflation. The rouble also has to be devalued (I'm honestly surprised it hasn't happened more). Meanwhile pressure is building on the central bank to cut rates — the current rate is essentially restrictive. Remember the 60 trln RUB sitting on deposits — that money will start moving once the rate cuts start or once people sense things are deteriorating. The external balance is still positive but trending down, which puts more pressure on the rouble. We're in for an interesting period.
And as a true patriot, I'm sitting up to my ears in US-listed assets denominated in foreign currency 🙂 — which is exactly what I've been saying for almost the entire history of this channel. Thanks for reading; hopefully the next post won't take six months!