"We are not in the recession stage, but in the stage of weak growth"
Despite the possible end of the conflict in the Middle East, oil prices will remain elevated throughout the year and Russian Urals will sell at an average of $80 per barrel. This forecast was given by Mikhail Zadornov, an economist, former finance minister and head of Otkritie Bank, in an interview with Izvestia. However, favorable economic conditions are unlikely to lead to excessive budget revenues — they will only allow us to fulfill the plan of 9 trillion in oil and gas revenues. As a result, the consolidated deficit may grow to 8 trillion in 2026, and the national debt may rise to 40 trillion, or 19% of GDP. Such a "soft" budget is the main reason why the Central Bank will slow down the reduction of the key rate: by the end of the year it will not fall below 13%. What resources does the Ministry of Finance have to replenish the treasury and reduce costs, whether there will be a recession, whether to transform the family mortgage and who will pay for it — in an interview with Mikhail Zadornov to Izvestia.
"This is not a windfall, but an opportunity to fulfill the revenue plan"
— Let's start with the conflict in the Middle East, which has fundamentally changed world politics and the economy in the last six months. Russia is feeling the consequences directly. According to your estimates, how much has the Russian budget earned due to the rise in oil prices against the background of what is happening? Was this effect offset by a strong ruble?
— Of course, the escalation had a direct impact on our exports. In January-February of this year, prices for Russian Urals crude oil remained at $45 per barrel, and budget revenues from oil and gas revenues (primarily mineral extraction tax) amounted to about 400 billion rubles per month. However, in March, quotations rose to $77, in April they reached $95, and the May estimate of the Ministry of Economic Development fixes the average price at $86.5 per barrel. In April, for example, oil and gas revenues reached almost 900 billion rubles.
Thus, the active phase of the conflict has almost doubled the flow of oil and gas revenues to the treasury, even despite the factor of a strong ruble. Without favorable commodity prices, the budget would have received only half of the estimated 9 trillion rubles of oil and gas revenues for the year. The conjuncture has allowed us to replenish the treasury, but it is important to understand: This is not a windfall, but rather an opportunity to fulfill an approved revenue plan.
— What are your expectations for the stabilization of oil prices, given that the parties to the conflict have begun to look for ways to end the confrontation?
— I am skeptical about forecasts of a quick end to the conflict: the markets are too optimistic. There are critically many contradictions between the participants in the confrontation. Moreover, restoring full-fledged shipping, repairing damaged infrastructure, and, most importantly, replenishing depleted strategic reserves (primarily by China, the United States, and Japan) will take considerable time. Even with the normalization of logistics, stocks will recover due to the fear of a repeat of the crisis.
Therefore, my forecast for this year is the average annual Urals price of $70-73 per barrel. This will allow collecting from 8.5 trillion to 8.7 trillion rubles of oil and gas revenues. Prices should be expected to decrease no earlier than the second quarter of 2027, and that's when the economy will become more difficult, so the Ministry of Finance is obliged to lay down conservative scenarios. The Ministry of Energy's May forecast, based on $50 per barrel for 2027-2029, is a reasonable reinsurance, although prices may actually be slightly higher if new sanctions shocks do not intervene.
Mikhail Zadornov was born in 1963. He was a deputy of the State Duma of the I–IV convocations, in 1994-1997 — Chairman of the Committee on Budget, Taxes, Banks and Finance. In 1997-1999, he served as Minister of Finance of the Russian Federation, during which a decision on default was made. Since 2005, he has worked in the banking sector: he was President and Chairman of the Board of VTB 24, Chairman of the Board of Directors of VTB Insurance and TransCreditBank. From January 2018 to January 2023, he was the President and Chairman of the Management Board of Otkritie Bank, which has been owned by the Central Bank since August 2017 as part of the restructuring.
— How will this affect the ruble exchange rate, which has already shown a weakening from 71 to 75 rubles/$ on the news of the end of the conflict?
— The ruble exchange rate reacts to the news, but the fundamental factor remains the balance of payments. High prices for export oil in March provided currency inflows that were twice as high as in February, and exporters are still working on high contracts. The weakening by several rubles in recent weeks is just a fluctuation. Since the beginning of the year, the national currency has strengthened.
I expect seasonal weakening to occur in the third and fourth quarters, but the average annual exchange rate will remain below 80 rubles/$. The weakening will not exceed 10% of today's levels, and the dollar is unlikely to be more than 83 rubles by the end of the year. The inflow of foreign currency earnings will be sufficient: gas prices with a three-month lag, metals (copper, nickel) and fertilizers remain high. Yes, on the other hand, imports have also increased by 10% in five months due to the strong ruble and may continue to increase slightly. But this does not threaten sustainability: the current account balance remains sufficient, and significant capital outflows are not expected in the current conditions.
— Currently, expert circles are discussing reducing the "cut-off price" (the level above which income goes to the National Welfare Fund) from $60 to $50 as early as 2027. Why is this decision being postponed, despite the depletion of the liquid part of the NWF?
— If we lower the cut-off price to $50 right now, we will have to drastically reduce budget expenditures. We are talking about cutting 5-7% of total federal budget spending, which amounts to trillions of rubles. This is an extremely unpleasant but necessary decision. We cannot ignore the risk of falling prices next year, and as of June 1, the liquid part of the NWF amounted to only 3.4 trillion rubles. But it is more reasonable to plan the budget for 2027 initially, based on the cut-off price of no more than $55 per barrel of export oil.
"Expenses will increase by at least 10%"
— Let's move on to the budget. In five months, the deficit exceeded 6 trillion rubles. Will it be possible to meet the 1.6% of GDP target, or will the deficit be greater?
— The federal budget deficit is now 6 trillion (about 2.5% of GDP), plus a regional deficit of 1.5 trillion. In total, there is about 7.5 trillion rubles of "gap", which is higher than 3.5% of GDP. This is twice as much as in the same period last year.
I do not believe that the situation will improve significantly in the second half of the year. The economic situation will allow us to fulfill the plan for oil and gas revenues, but expenses will also increase by at least 10%. Although July may be in surplus due to dividends and tax payments, by the end of the year the consolidated budget deficit will exceed a record 8 trillion rubles (above 3.5% of GDP). The planned net domestic borrowings amount to 4 trillion rubles, but the market will have to attract another 2-2.5 trillion through floating—rate OFZs.
— How safe is the current level of government debt at 35 trillion rubles?
— If we compare with international practice, there is a reserve for increasing the national debt. But the problems are in the growth rate and the cost of maintenance. For example, Japan has a debt of 200% of GDP at 0.5% interest rates, and it's cheap. Our entire debt is less than 30% of GDP, but the key rate is 14.25%, and the OFZ yield is 15.5%. The share of domestic debt to GDP increased from 14.5% at the beginning of 2024 to 19% by the end of this year, and its volume will soon exceed 40 trillion rubles. With such dynamics, government debt servicing, along with subsidies (mortgages, project financing), will soon require 12-13% of all budget expenditures, "eating away" an increasing chunk from other areas. High-interest debt worsens the fiscal maneuver.
— What do you see as reserves to reduce costs?
— There are three obvious sources. The first is unallocated expenses for national projects (1.5—1.8 trillion rubles), this money has so far been allocated only on paper. The second is investment programs: temporarily freeze new infrastructure projects. The third is subsidies. It's time to wind down the programs launched during the pandemic, primarily preferential mortgages.
— Can we see further tax increases?
— First, we need to evaluate the effectiveness of the measures already implemented — VAT, excise taxes, increased income tax and tax on deposits. Right now, the priority is administration. It is necessary to close the schemes of "gray" import of cars without payment of scrap collection through the EAEU countries and equalize VAT within the Eurasian space. Russia plans to introduce VAT on marketplace products starting in 2027. This will replenish the budget without the need to raise tax rates.
"The rate will not drop below 13%"
— What is your forecast for the Central Bank's rate, given the regulator's concern about budget uncertainty?
— The policy of the Central Bank is a direct consequence of the budget deficit. The regulator is forced to be reinsured and keep the rate above balanced. At the next meeting, I expect a pause or a decrease of 0.25 percentage points. The government will not disclose the real budget parameters until the end of September, so the Central Bank and the Cabinet will be in wait-and-see mode. My forecast for the end of the year is quite conservative — the rate will not fall below 13%. The main thing is for the Central Bank to continue to make its decisions independently and not succumb to pressure. At the last meeting, it confirmed this status by lowering the rate by only 0.25 percentage points.
— Will the Central Bank be able to keep inflation at last year's level of 5.5%?
— Inflation is divided into three components. The first is non—food, which is generally under control due to imports and the ruble exchange rate, if we do not talk about the auto segment, which is suffering from the growth of recycling. The second is food prices, which, thanks to the harvest, also promise to rise slightly, because in recent months it has even been possible to record weekly deflation.
The main risk for inflation is paid services: utility tariffs will rise by 11% from October 1, and transport tariffs by 10-12%. Plus the crisis in the fuel market: The shortage of refinery capacity accelerates transportation costs, which are included in the prices of all goods. Keeping inflation at 5.5% would be a good result, but the numbers are likely to be higher than 6%.
"Family mortgages should be completely abolished"
— You mentioned preferential mortgages as one of the resources to reduce budget expenditures. Earlier, you estimated the treasury's spending on subsidizing rates at more than a trillion per year. There is currently a public discussion about renegotiating the terms of a family mortgage and ranking rates depending on the number of children and the region. How much money can this save for the budget?
— Any benefit should be short-term, final. Turning a preferential mortgage into a long—term project is a mistake. Subsidizing the interest rate difference by 4-5 trillion rubles of the loan portfolio is paid for from taxes. For comparison, in 2025, budget subsidies to banks under various preferential programs amounted to 1.7 trillion rubles, and fees from increased personal income tax — 1 trillion. Family mortgages should not be differentiated, but completely abolished in order to return to market mechanisms.
— What is your forecast for housing prices?
— After the cancellation of the benefits, the market will need about three years to balance. The experience of 2014-2016 shows that prices are stagnating or falling. In real terms, primary housing will fall in price by 15-20% by the end of 2027 compared to the level of 2023-2024. I'm talking about accessibility: prices will stagnate, and salaries will have to rise to balance the market.
There should also be a price alignment between the primary and secondary markets. But, alas, it will not be possible to return to the ratio of "real estate price / salary in 2019": during this time, there has been too strong an acceleration in the cost, housing is no longer affordable.
"Economic growth this year will range from 0.8% to 1%"
— In the first quarter, the Russian economy shrank by 0.3% year-on-year. The Ministry of Energy is already forecasting growth of only 0.4% by the end of 2026. What is your forecast for GDP?
— I consider Minek's forecast to be underestimated. A large influx of export money spreads through the economy in the form of orders and consumption. Consumer spending reached a good level in April—June, and retail trade turnover is growing by about 3.5–4% in price terms, rather than in commodity terms. Taking into account the increase in consumption and exports, economic growth this year will range from 0.8% to 1%, which corresponds to the level of last year. So we are not in a recession or in a supercooling stage, but in a stage of weak growth of 1% per year. But the situation is not uniform across industries.
The growth is primarily due to the defense industry, as well as the extractive industry, which had previously been declining for three years (this includes not only oil and gas, but also the extraction of non-ferrous metals and gold). Consumption, retail and HoReCa (unites three business segments from the service sector: Hotel (Hotel), Restaurant (Restaurant) and Café (Cafe). In the first five months, they showed decent growth in the range of 5%, although in the summer the dynamics may become complicated due to problems with gasoline and disruptions in transport. Plus, agriculture, as well as the sphere of information and communications (IT and telecom) will be shown. Not at such a fast pace, but the financial sector is growing. These industries are the mainstays of growth.
But the entire manufacturing industry, except for the defense industry, is noticeably and strongly declining. Metallurgy was added to the depressed sectors of the coal, forestry and automotive industries this year, where a 10% decrease in production volumes was recorded in the first five months. It is also decreasing in consumer—oriented industries, such as clothing, furniture, and a significant part of the food industry.
— Is the severe slowdown in the industries you listed a temporary cyclical downturn or deeper structural problems that could lead to a recession?
— These are precisely structural problems, and each industry has its own problems. The coal industry is affected by the economic situation: low prices with high production costs and a huge transport shoulder to the east do not allow exporting coal profitably, and the industry was based only on exports.
The forestry industry was focused on Europe by 60-70%. When the European market closed for our lumber, plywood and chipboard, we had to redirect flows to China, which dictates its own terms. The domestic market for Russian timber products has not been developed: We have a weak furniture industry, and wooden house construction is not developed.
— Do you see the potential for accelerating the economy in the introduction of AI?
— We see huge investments in AI in the USA and China, to a lesser extent in Europe. There are several projects in Russia, but investments in them are two orders of magnitude less than in the United States. At the same time, there is no measurable economic effect from the use of artificial intelligence yet. Currently, the only winners are those who provide infrastructure, such as chip and semiconductor manufacturers, energy companies, and data center builders. They have profits and capitalization.
My forecast is that a significant part of the investment will have to be written off or overestimated. Eventually, products will be created, such as new features in smartphones, but their economic impact is unlikely to recoup the current enormous costs.
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