Putin says Russia’s budget deficit poses no critical risk

Russian President Vladimir Putin said Thursday that the country’s budget deficit does not present a critical risk to the economy. The deficit grew 40% from January to July this year to reach 2.8% of gross domestic product.

Putin made the comments at an economic forum in Vladivostok. He said Russia’s low level of national debt compared to other countries means the deficit situation is manageable. The official deficit target for this year stands at 1.6% of GDP.

The war in Ukraine, now in its fourth year, has led to increased government spending. The economy slowed last year, prompting the government to raise taxes and increase borrowing to fund military operations.

Ukrainian drone attacks on Russian economic targets, including oil refineries and warehouses owned by online retailers Wildberries and Ozon, have caused fuel shortages and pushed up inflation. Small businesses have also reported losses from these attacks.

Russia’s central bank will meet on September 11 to review its key interest rate, which currently stands at 14%. Business groups have called for the rate to be lowered to below 12%, which they say is necessary for economic growth to resume.

The central bank faces pressure from the expanding budget deficit and new inflation risks. Analysts polled this week expect the bank to maintain the current rate while it assesses these risks.

Putin said Thursday that it was important to avoid overcooling the economy. He added that current monetary policy was not too restrictive. He said the government has created multiple loan programs to help businesses access credit despite high interest rates.