By Darya Korsunskaya and Gleb Bryanski

MOSCOW (Reuters) – Russia’s state budget for next year, which includes a 25% hike in military spending, will also be the most secretive in post-Soviet history, with almost one-third of all spending closed to public scrutiny, according to Reuters calculations.

The government plans to spend 41.5 trillion roubles ($443.14 billion) next year, more than initially expected, with additional revenues coming from hikes in corporate and personal income taxes.

Of that headline figure, the draft budget documents properly earmark only 28.4 trillion roubles for targeted items. The rest of the budget, including 85% of all national defence spending, is classified.

In this year’s budget, about 30% of all spending was classified. The government also stopped publishing all budget execution data in May 2022 as part of classification measures aimed at shielding the economy from sanctions.

“Militarisation of the economy is continuing,” said economist Evgeny Suvorov, author of a popular economy-focused Telegram channel.

The new secretive draft budget even caught the central bank by surprise. In the coming weeks it will analyse the data to establish its potential impact on inflation, currently running at about 9%, ahead of its rate-setting meeting on 25 October.

“There are a number of unexpected elements in the budget that may require adjustments,” Interfax news agency cited the outgoing head of the central bank’s monetary policy department, Kirill Tremasov, as saying.

Analysts say one of the surprises is a higher-than-expected hike in state-regulated utility tariffs by almost 12%, twice as much as initially planned.

Another surprise, according to analysts, is the increase in this year’s total public spending by 7.6%.

INFLATIONARY CHALLENGE

“The increase in tariffs is likely to worsen inflation expectations, which will contribute to accelerating inflation and will require greater strictness from the central bank,” said Alfa Bank’s Natalia Orlova.

The government has acknowledged that the needs of what Moscow calls its “special military operation” in Ukraine and support for the military will remain the budget priority along with social needs and technological development.

The government presented the draft budget as “balanced”, with the deficit falling to 0.5% against this year’s projected deficit of 1.7%, and state debt remaining below the 20% mark, seen as safe by the government, for the next three years.

It also noted the full restoration from 2025 of the “budget rule,” a mechanism whereby windfall energy revenues are set aside, saying this would enhance economic stability in the longer term.

The rule was suspended in the aftermath of Russia’s invasion of Ukraine in February 2022 and then restored in a truncated form this year.

The Kremlin welcomed the published draft on Tuesday.

“This is a carefully balanced, well-calibrated budget,” Kremlin spokesman Dmitry Peskov said.

All mainstream Russian media have avoided reporting on the hike in the budget’s military spending, focusing instead on handouts for vulnerable groups.

Analysts from state-controlled financial institutions refrained from criticising the draft – at least directly.

Asked about the likely impact of the spending hike on inflation, Rodion Latypov, chief economist for Russia’s second-largest lender VTB, said: “I have the answer. I will not say it out loud.”

($1 = 93.6500 roubles)

(Reporting by Darya Korsunskaya and Gleb Bryanski, writing by Gleb Bryanski; Editing by Gareth Jones)

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