By Darya Korsunskaya
MOSCOW, March 11 (Reuters) - The Russian government is preparing a possible 10% cut to all "non-sensitive" spending in this year's budget, sources told Reuters, but the final decision will hinge on the sustainability of the oil price rise triggered by the Iran war.
As the war in Ukraine enters its fifth year, Russia is facing a double whammy of falling budget revenues from energy sales and of an economic slowdown, which affects tax income from other sectors of the economy.
The government
is planning to divert more money into the budget reserve fund to prevent it from potential depletion. The measure could be accompanied by a corresponding cut in spending.
"The Finance Ministry has informed agencies distributing budget funds that there is a need to cut spending. They are now sitting around thinking what to cut," said one of the sources, who spoke on condition of anonymity due to the sensitivity of the situation.
CUTS WON'T BE 'ACROSS THE BOARD'
Two of the four sources close to the government, who are privy to the Finance Ministry's communications, mentioned the 10% reduction, while the other two said the cut is being discussed without specifying the figure.
The Finance Ministry told Reuters in comments on this story that it is discussing measures to prioritize budget spending with other ministries. Andrei Gangan, head of the monetary policy department at the central bank, said an optimisation of spending can only be welcomed.
The ministry added that decisions will not affect spending on what Russia terms its "special military operation" in Ukraine or social obligations to Russian citizens, but will help to avoid increasing debt and to retain long-term stability of state finances.
The sources said the cuts will not be across the board and will spare politically-sensitive military spending as well as socially-sensitive spending, such as salaries to public sector workers or welfare payouts.
"This is always done by optimising non-essential expenses. Some new projects will be put on hold, such as construction or road repairs. These are likely to be considered for cuts," another source said.
Ordinary people in Russia have been hit by rising inflation, but are yet to feel widespread pain from an economic slowdown, triggered by high interest rates, while cuts in government spending have not yet caused mass layoffs. The economic situation is made worse by Western sanctions which hurt Russia's global energy sales.
In the first two months of 2026, Russia's budget energy revenues halved while overall revenues fell by 11%. Russia, which had to raise the budget deficit estimate twice last year, plans a deficit of 1.6% of gross domestic product in 2026.
WAITING TO SEE OIL PRICES CHANGE
The situation reversed sharply after the U.S. and Israeli attacks on Iran and the closure of the Strait of Hormuz led to oil prices skyrocketing with the demand for Russian oil rising, and the U.S. even considering lifting sanctions on Russia.
The third source said that the oil price growth will not be sustainable in the long term and the current budget situation requires spending cuts regardless of the short-term oil price fluctuations. The sources stressed there was no decision yet.
"Decisions on the extent of spending cuts have not been made yet, as everyone is waiting to see how oil prices will change as a result of the conflict in Iran," said the fourth source.
Russian President Vladimir Putin held a late-night meeting with his government in the Kremlin on the budget situation in February, which, in the words of Prime Minister Mikhail Mishustin, lasted many hours.
Following this meeting Finance Minister Anton Siluanov said the government will lower the so-called "cut-off" price of oil, currently at $59, above which energy revenues flow into the reserve fund, bringing it in line with reality.
In February, the average price of Russian oil, calculated for taxation purposes was 24% below the "cut-off" price, meaning that the government had to tap the National Wealth Fund to cover the deficit.
(Reporting by Reuters; Writing by Gleb Bryanski; Editing by Guy Faulconbridge and Sharon Singleton)
