(Bloomberg) -- Russia’s budget deficit jumped in the first two months of the year but spending showed signs of growing at a slower pace amid the invasion of Ukraine.

The shortfall reached 2.58 trillion rubles ($34 billion), with expenditure at 5.74 trillion rubles, the Finance Ministry said Monday. While it didn’t break out the monthly totals, spending in February appeared to fall from January’s 3.12 trillion rubles.

Although the budget is deep in the red, the ministry said it remains on target to keep the shortfall for the year within the target. It blamed heavily front-loaded spending this year for the jump in expenditures.  

What Bloomberg Economics Says...

“The main reason behind the deficit decline is a 15% drop in public spending after extremely large outlays in the first month of the year. Still, Moscow will find it challenging to balance its books as domestic sovereign yields soared above 11% and non-oil revenues continue to shrink.”

—Alexander Isakov, Russia economist. 

Sanctions and other restrictions imposed by the US and its allies over Russia’s invasion of Ukraine have hit the country’s earnings from energy exports hard as the limits have taken hold in the last few months. 

Non-energy revenues were down 9%, a smaller drop than the 28% seen in January. Bloomberg Economics expects the federal budget to run a deficit of 3%-4% of gross domestic product this year.

The ministry said that changes to the oil-pricing formula used for calculating taxes will help ease the pain for the budget, especially in the second half of the year.

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