Russia’s budget deficit has surged. But economists say Moscow won’t drain its war chest any time soon
Men wearing military uniform walk along Red Square in front of St. Basil’s Cathedral in central Moscow on February 13, 2023.
Alexander Nemenov | Afp | Getty Images
The coming months will be critical in figuring out how Russia’s economy is holding up in the face of a new suite of sanctions, and for how long it can continue pouring money into its military assault on Ukraine.
Russia’s budget deficit hit a record 1.8 trillion Russian rubles ($24.4 million) in January, with spending growing by 58% from the previous year while revenues fell by more than a third.
Industrial production and retail sales in December fell to their worst year-on-year contractions since the onset of the Covid-19 pandemic in early 2020, with retail sales dropping by 10.5% year-on-year while industrial production shrank by 4.3%, compared to a 1.8% contraction in November.
Russia has yet to report its GDP growth figures for December, which are expected to be incorporated into full-year 2022 data slated for this Friday.
According to the World Bank, the International Monetary Fund and the OECD, Russian GDP dropped by at least 2.2% in a best-case scenario in 2022 and by up to 3.9%, and is widely expected to contract again in 2023.
However, both the Russian finance ministry and the central bank maintain that all of this is within their models.
Several unique circumstances and accounting technicalities go some way to explaining the scale of the January deficit figure, according to Chris Weafer, CEO of Moscow-based Macro Advisory.
The big drop in tax revenue was mostly accounted for by changes in the tax regime that kicked in at the beginning of January, the finance ministry claimed. Companies previously paid taxes twice per month, but now make one consolidated payment on the 28th of each month.
The finance ministry suggested most of the January tax payments had not yet been accounted for by Jan. 31 and will instead feed into the February and March figures.
Weafer also highlighted a change in the Russian oil tax maneuver that came into force in January and is expected to iron out in the coming months, while the nature of Russian public spending allocation means it is heavily concentrated at the end of the year, widening the fiscal deficit.
Christopher Granville, managing director of global political research at TS Lombard, noted two further factors distorting the most recent deficit figures.
Firstly, this was the first print since the sanctioning states’ embargo on Russian crude imports went into force on Dec. 5.
“Before that date, Europe had been loading up with Urals crude, then straight to zero, so the Russian seaborne export trade had to be re-routed overnight,” Granville told CNBC.
“Obviously a lot of preparations for that re-routing had been made (Russia buying up tankers, getting more access to the ‘shadow’ or ‘dark’ fleet etc), but the transition was bound to be bumpy.”
The actual Urals price dived as a result, averaging just $46.8 per barrel during the period from mid-December to mid-January, according to the Russian finance ministry. This was the tax base for much of January’s oil and gas-related federal budget revenues, which also suffered from the fading of a revenue windfall in the fourth quarter from a hike to the natural gas royalty tax.
The finance ministry also flagged massive advance payments for state procurement in January, which totaled five times those of January 2022.
“Although they don’t say what this is, the answer is perfectly obvious: pre-payment to the military industrial complex for weapons production for the war,” Granville said.
How long can the reserves last?
For the month of January as a whole, the average Urals price edged back up to $50 a barrel, and both Granville and Weafer said it would be important to gauge the impact on Urals price and Russian exports as the full impact of the latest round of sanctions becomes clearer.
Sanctioning countries extended bans to bar vessels from carrying Russian-originated petroleum products from Feb. 5, and the International Energy Agency expects Russian exports to plummet as it struggles to find alternative trading partners.
The export price for Russian crude is seen as a central determinant for how quickly Russia’s National Wealth Fund will be drawn down, most notably its key reserve buffer of 310 billion Chinese yuan ($45.5 billion), as of Jan. 1.
Russia has ramped up its sales of Chinese yuan as energy revenues have declined, and plans to sell a further 160.2 billion rubles’ worth of foreign currency between Feb. 7 and Mar. 6, almost three times its FX sales from the previous month.
However, Russia still has plenty in the tank, and Granville said the Kremlin would stop depleting its yuan reserves well before they were fully exhausted, instead resorting to other expedients.
“A flavour of this is the idea floated by MinFin to benchmark oil taxation on Brent rather than Urals (i.e. a material hike in the tax burden on the Russian oil industry, which would then be expected to offset the blow by investing in logistics to narrow the deficit to Brent) or the proposal from First Deputy Prime Minister Andrey Belousov that major companies flush with 2022 profits should make a ‘voluntary contribution’ to the federal budget (mooted scale: Rb200-250bn),” Granville said.
Several reports last year suggested Moscow could invest in another wave of yuan and other “friendly” currency reserves if oil and gas revenues allow. Yet given the current fiscal situation, it may be unable to replenish its FX reserves for some time, according to Agathe Demarais, global forecasting director at the Economist Intelligence Unit.
“Statistics are state secrets these days in Russia especially regarding the reserves of the sovereign wealth funds — it’s very, very hard to know when this is going to happen, but everything that we’re seeing from the fiscal stance is that things are not going very well, and so it is clear that Russia must draw down from its reserves,” she told CNBC.
“Also, it has plans to issue debt, but this can only be done domestically so it’s like a closed circuit — Russian banks buying debt from the Russian state, etcetera etcetera. That’s not exactly the most efficient way to finance itself, and obviously if something falls down then the whole system falls down.”
Early rounds of sanctions following the invasion of Ukraine set out to ostracize Russia from the global financial system and freeze assets held in Western currencies, while barring investment into the country.
Sanctions not about ‘collapse’ of Russian economy
The unique makeup of the Russian economy — in particular the substantial portion of GDP that is generated by state-owned enterprises — is a key reason why Russian domestic life and the war effort appear, at least at face value, to be relatively unaffected by sanctions, according to Weafer.
“What that means is that, in times of difficulty, the state is able to put money into the state sectors, create stability and subsidies and keep those industries and services going,” he said.
“That provides a stabilizing factor for the economy, but equally, of course, in good times or in recovery times, that acts as an anchor.”
In the private sector, Weafer noted, there is far greater volatility, as evidenced by a recent plunge in activity in the Russian auto manufacturing sector.
However, he suggested that the government’s ability to subsidize key industries in the state sector has kept unemployment low, while parallel trading markets through countries such as India and Turkey have meant the lifestyles of Russian citizens have not been substantially impacted as yet.
“I think it’s increasingly dependent on how much money the government has to spend. If it has enough money to spend providing social supports and key industry supports, that situation can last for a very, very long time,” Weafer said.
“On the other hand, if the budget comes under strain and we know that the government can’t borrow money, that they’re going to have to start making cuts and making choices between military expenditure, key industry supports, social supports, and that’s what situation may change, but right now, they have enough money for the military, for key industry supports, for job subsidies and for social programs.”
As such, he suggested that there is little pressure on the Kremlin from the domestic economy or the population to change course in Ukraine for the time being.
Diminished technology access
Demarais, author of a book on the global impact of U.S. sanctions, reiterated that the most significant long-term damage will come from Russia’s receding access to technology and expertise, in turn causing a gradual attrition of its main economic cash cow — the energy sector.
The aim of the sanctions onslaught, she explained, was not a much-touted “collapse of the Russian economy” or regime change, but the slow and gradual attrition of Russia’s ability to wage war in Ukraine from a financial and technological perspective.
“The technology gap, those sectors of the economy that rely on accessing Western technology in particular, or Western expertise, in many areas are definitely going to degrade and the gap between them and the rest of the world is going to widen,” Weafer said.
The Russian government has begun a program of localization and import substitution alongside companies in so-called friendly countries, with a view to eventually creating a new technological infrastructure over the next several years.
“Even the optimists say that’s probably the end of the decade before that can be done, it’s not a quick fix,” Weafer explained.
“I think even government ministers are saying by the time you put everything in place with training and education, facilities etc., it’s a minimum five-year program and it’s probably more like seven or eight years before you can start to deliver engagement, if you get it right.”
A spokesperson for the Russian finance ministry was not immediately available for comment when contacted by CNBC.
Solar is taking off across Africa in a big way. According to a new analysis of China’s solar panel exports data from energy think tank Ember, solar panel imports into the continent jumped 60% in the 12 months through June 2025, setting a record that could reshape electricity systems in many countries.
In that period, Africa imported 15,032 megawatts (MW) of solar panels, up from 9,379 MW the year before. While South Africa has dominated past surges, this wave is happening across the map: 20 countries set new import records, and 25 countries each brought in at least 100 MW, compared to just 15 a year earlier.
Nigeria overtook Egypt to become the second-largest importer with 1,721 MW, while Algeria surged into third with 1,199 MW. Growth rates in some countries were staggering: Algeria’s imports jumped 33-fold, Zambia’s eightfold, Botswana’s sevenfold, and Sudan’s sixfold. Liberia, the DRC, Benin, Angola, and Ethiopia all more than tripled their imports.
Still, import numbers don’t tell the whole story. It’s unclear how many of these panels have been installed yet. Muhammad Mustafa Amjad of Renewables First, an energy transition think tank in Pakistan, pointed out that countries risk losing valuable time and opportunities without proper tracking. “Africa’s transition will happen regardless,” he said, “but with timely data it can be more equitable, planned, and inclusive.”
If these panels do get installed, the impact could be massive. In Sierra Leone, the past year’s imports alone could cover 61% of the country’s 2023 electricity generation. For Chad, it’s 49%. Liberia, Somalia, Eritrea, Togo, and Benin could all boost generation by more than 10% compared to 2023, and 16 countries could see increases of over 5%.
The economic case is also strong. In Nigeria, solar savings from replacing diesel could repay panel costs in just six months, or even less in other countries. In fact, in nine of Africa’s top 10 solar panel importers, the value of imported refined petroleum outweighed solar imports by factors of between 30 to 107.
Ember’s chief analyst, Dave Jones, called the surge “a pivotal moment,” urging more research and reporting to keep pace with the rapid rise to “ensure the world’s cheapest electricity source fulfills its vast potential to transform the African continent.”
Read more: Batteries are so cheap now, solar power doesn’t sleep
The 30% federal solar tax credit is ending this year. If you’ve ever considered going solar, now’s the time to act. To make sure you find a trusted, reliable solar installer near you that offers competitive pricing, check out EnergySage, a free service that makes it easy for you to go solar. It has hundreds of pre-vetted solar installers competing for your business, ensuring you get high-quality solutions and save 20-30% compared to going it alone. Plus, it’s free to use, and you won’t get sales calls until you select an installer and share your phone number with them.
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Hyundai and Kia vehicles are popping up on US roads more than ever, and a lot of it has to do with EVs. The South Korean auto giants just hit another milestone as they gear up to introduce several new models.
Hyundai and Kia bet on EVs, hybrids for growth in the US
After launching their first hybrid vehicles in the US in 2011, the Sonata and K5, Hyundai and Kia have come a long way.
Today, two out of ten Hyundai or Kia models sold in the US are considered “eco-friendly,” including electric (EV), hybrid, plug-in hybrid (PHEV), and fuel cell electric (FCEV) vehicles.
After 14 years, Hyundai and Kia announced on Monday that combined, they have now sold over 1.5 million eco-friendly cars in the US. In a statement, the company said it continues seeing strong demand for several models, including the Tucson Hybrid, IONIQ 5, and Niro Hybrid.
Although 14 years is a relatively long time, in the first few years, they only offered a few models. It took 11 years to reach the 500,000 mark in 2022, and in just three years, they’ve since tripled it.
Since reaching 100,000 in annual sales in 2021, brand sales of eco-friendly cars have grown rapidly. Hyundai and Kia sold 182,627 units in 2022, 278,122 units in 2023, and 364,441 units in 2024. This year, they sold over 221,500 in the first six months, up 20% from the same period in 2024.
Hybrids accounted for over 1.1 million, followed by electric vehicles with nearly 375,000, and FCEVs at just over 1,850 units sold.
The Hyundai Tucson Hybrid and Kia Niro Hybrid are the brand’s top-selling eco-friendly cars in the US. Hyundai’s Sonata Hybrid and IONIQ 5 ranked second and fourth. Meanwhile, the Kia Sportage Hybrid and Sorento Hybrid placed third and fifth.
Hyundai and Kia offer 19 eco-friendly vehicles in the US, including eight hybrid and PHEVs, 10 EVs, and just one FCEV.
Both brands sold more vehicles in the US in the first half of the year than ever. With Hyundai now building vehicles at its new EV plant in Georgia, including the 2025 IONIQ 5 and 2026 IONIQ 9, the automaker expects the growth to continue. Kia assembles the EV6 and EV9 at a separate plant in Georgia, and will introduce the EV4, its first electric sedan, in early 2026.
Based on the advanced E-GMP platform, Hyundai and Kia’s electric vehicles offer some of the longest driving ranges, fastest charging speeds, and remain surprisingly affordable.
With leases starting as low as $159 per month, the 2025 Hyundai IONIQ 5 is one of the most affordable EV lease deals in the US. Even the three-row IONIQ 9 is listed with monthly leases as low as $299. That’s pretty cheap for a nearly $60,000 three-row electric SUV.
Hyundai will continue to offer hybrids in response to the changing policies under the Trump Administration. It also plans to add hybrid production in Georgia, starting next year.
Looking to check one out for yourself? We can help you find vehicles in your area. You can use our links below to view Hyundai and Kia models near you.
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Three years after the Inflation Reduction Act (IRA) became law, Rewiring America is rolling out a new effort to make sure homeowners don’t miss out on major savings.
The Save on Better Appliances campaign is designed to help families take advantage of federal energy tax credits before they expire at the end of 2025, while also showing how modern electric appliances can cut long-term energy costs.
With utility bills climbing, the group is highlighting the benefits of heat pumps, heat pump water heaters, rooftop solar, and other upgrades that can keep homes comfortable while protecting against future price spikes. For many households, energy-efficient appliances are one of the few ways to bring bills under control – and that value remains even after federal incentives are gone.
Right now, homeowners can still access the federal Energy Efficient Home Improvement Credit (25C) and Residential Clean Energy Credit (25D). On top of that, thousands of state, local, and utility-level incentives are available to help offset upfront costs.
Ari Matusiak, CEO of Rewiring America, pointed out that the IRA incentives were never meant to last forever:
Congress’s decision to repeal them prematurely means households should act fast. But the savings, comfort, and long-term value of these upgrades remain. For homeowners ready to act, we have the tools to help. And for those who need more time, we’re working to expand your options and ensure that these upgrades make financial sense whenever the moment is right.
What the campaign offers
The Save on Better Appliances campaign runs through October and includes:
- A central hub where homeowners can learn about the expiring credits, check out state, local, and utility incentives, and connect with vetted contractors.
- Weekly Zoom drop-in sessions with Certified Electric Coaches, starting September 3, to answer questions about home upgrades.
- Contractor tools, including Rewiring America’s Contractor Finder, soon to be integrated with the BetterHVAC directory for more trusted installer options.
- A new Single-Project Personal Electrification Planner to help homeowners map out common projects like heat pumps, energy audits, and electrical upgrades.
“I’ve been doing HVAC installations for the past 40 years, and I can tell you that I’ve seen firsthand how the 25C tax credit has made heat pumps, the most efficient HVAC technology, more affordable and accessible for homeowners,” said Scotty Libby, owner of Maine-based Royal River Heat Pumps. “Homeowners should talk to their local contractors now if they want to upgrade their HVAC, take advantage of the tax credit, and lock in the potential long-term energy savings a heat pump would provide.”
Beyond tax credits
Rewiring America is also working with manufacturers, contractors, and lenders to make upgrades more affordable, even without federal help. In Rhode Island and Colorado, families can already access specially priced heat pump packages, with more states on the way. These deals will expand in 2026 and beyond, lowering upfront costs no matter what happens in Washington.
Across the country, state agencies, utilities, and local nonprofits are already leading creative programs to help families save money, find trusted contractors, and begin electrifying their homes. Rewiring America says this campaign is about amplifying that work and making it easier for households to take the first step.
“Tax credits may expire, but the benefits of better HVAC – lower bills, healthier homes, and lasting comfort – are here to stay. That’s why we’re supporting Rewiring America’s campaign,” said Bill Spohn, Sr., president of the Better HVAC Alliance.
Read more: US EV sales stay strong, but looming tariffs threaten affordability
The 30% federal solar tax credit is ending this year. If you’ve ever considered going solar, now’s the time to act. To make sure you find a trusted, reliable solar installer near you that offers competitive pricing, check out EnergySage, a free service that makes it easy for you to go solar. It has hundreds of pre-vetted solar installers competing for your business, ensuring you get high-quality solutions and save 20-30% compared to going it alone. Plus, it’s free to use, and you won’t get sales calls until you select an installer and share your phone number with them.
Your personalized solar quotes are easy to compare online and you’ll get access to unbiased Energy Advisors to help you every step of the way. Get started here.
FTC: We use income earning auto affiliate links. More.
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