Russia’s national defence spending grew twofold from 1 January to 14 March 2023 compared to the same period last year, as per the data published on the governmental Electronic Budget portal studied by Novaya-Europe. This covers only the part of the federal budget that was made public. The growth of military spending was one of the major factors leading to record-breaking budget deficit at the beginning of 2023. Novaya-Europe explains what the money was spent on and what will happen to the budget next.

The public expenditures of the federal budget on national defence amounted to 484.4 billion rubles (€5.8 billion) during the period from 1 January to 14 March 2023, which is twice as much as in the same period last year. Furthermore, the plan was to increase the spending under this article only by 6.4% in 2023 — up to 4.9 trillion rubles (€58.8 billion).

The actual expenses are significantly higher than the open data suggests. For comparison: in 2022, the national defence expenditure amounted to 4.6 trillion rubles (€55.2 billion), with the public part making up only 1.7 trillion rubles (€20.4 billion), or 37%. According to Russian newspaper Vedomosti, in total, 23% of the federal budget spending was classified in 2023, which broke the record held by 2015 when 21% had been classified.

Expenditures in other spheres also increased, although not as significantly.

The Ministry of Internal Affairs, Russia’s National Guard, the Ministry of Emergency Services, and special services are all financed under the “National Defence” article. The corresponding expenditures have reached 279 billion rubles (€3.35 billion), which is 18.2% higher compared to the same period last year. Furthermore, back in 2022, national defence spending was increased by 58% — up to 4.4 trillion rubles (€52.8 billion). The major part of the increase applies to the classified parts of the expenditures. It was planned to go up by 59%.

The increase of economic and social expenditures is on the same level as the rise in law enforcement spending. The financing under the article on national economy grew by 44.6%, healthcare system by 29.5%, and education by 58%.

Still, according to the government’s official plan, the federal budget expenditures are supposed to decrease this year from 31.1 trillion rubles (€373.2 billion) to 29.1 (€349.2 billion). As of 14 March, the budget deficit was already 3.4 trillion rubles (€40.8 billion), even though according to the plan, it should have stayed at 2.9 trillion rubles (€34.8 billion) over the entire year. During the first two months of 2023, the spending grew 1.5 times compared to the same period last year. The spending on public procurement grew over twofold.

The increase of expenditures at the beginning of the year could be connected to the new format of state contract financing which was approved by the government last spring, economist Alexandra Suslina-Osmolovskaya tells Novaya-Europe. Back then, the maximum amount for an upfront payment was increased from 30% to 90%. The contracts with an upfront payment over 50% no longer get treasury support, which can delay the transfer of money to the supplier.

“Before, it went like this: an application comes into the treasury, it’s considered, then the money arrives. Now, there is an upfront payment for those whose request was approved. Thus, the money is allocated before it comes into the budget. I suspect that the government is certain that they will receive the money, so for now, they’re allocating money from the sources at their disposal. And theoretically, the spending pace should decrease with time,” she explains.

According to the ministry, this will lead to a more equal cash execution of expenses during the entire year. Before, the bulk of the expenditures was usually allocated during the last months.

This scheme is needed so that the financing of proprietary expenses is conducted without delays, the expert thinks. Representatives of civic sectors, seeing the increase of military expenditures, could have also requested upfront payments, fearing that there would be no money left for them. This practice increases the possibility of corruption risks. “When the money is paid upfront, it’s way more difficult to track it and way easier to embezzle locally,” the economist explains.

The trend for classified data, non-transparency, and lack of public control over the state budget is clear, she notes. Aside from increasing the classified part of the budget, in 2022 the Finance Ministry also closed the section of its website with the details on the immediate execution of the budget. Now, for example, there is only data available on the money spent on the armed forces in general, however, one can no longer find out how much is spent on separate things — wages or military equipment.

Furthermore, during the start of the pandemic in 2020, the government was allowed to redistribute expenses without amending the budget, under the pretext of anti-COVID measures. “That was done so that there would be no need for reports. So that there would be no way to make estimates and print something negative in the media, or what was left of it. See, there’s no use digging stuff up,” Suslina-Osmolovskaya explains.

The main budget intrigue this year is whether the Finance Ministry will be able to seize enough money from oil companies, using the new calculation formula on Urals’ taxable price. This will become clear in the summer, when the transition to the new formula is completed.