Russia’s budget deficit, aided by an increase in oil and gas revenue, shrank for the third straight month despite rising expenditures due to the Kremlin’s war in Ukraine.

The fiscal gap narrowed to 1.2 trillion rubles ($13 billion), or just 0.7% of Russia’s gross domestic product, at the end of October, Finance Ministry data showed. An increase in oil and gas revenue allowed Russia to cope better than forecast under the budget law, which targeted the deficit at 2% of GDP.

Despite sweeping sanctions imposed by the US and its allies to limit the Kremlin’s proceeds from key commodity exports, oil and gas revenue surged in October by more than 27%, leading to a budget surplus for the third month in a row, according to Bloomberg calculations.

Additional oil and gas revenue during periods of favorable prices and the use of National Wellbeing Fund resources “ensures the sustainability of the budget system” despite volatility in oil and gas revenue, the Finance Ministry said in a statement.

What Bloomberg Economics says...

Russia’s public finances reached a sort of equilibrium. October’s federal budget surplus stood around 0.3% of GDP as it did in September. In the final months of the year, we expect bumper spending to push the budget back into deficit for a shortfall of 2% of GDP for the whole of 2023.

Alex Isakov, Russia economist

The country’s budget is under pressure from the rising cost of the Kremlin’s war in Ukraine. In the first 10 months of the year, Russia’s expenditures rose by almost 12% compared with the first year of the invasion. Finance Minister Anton Siluanov last month admitted that next year the national budget will be oriented toward one main goal — victory in the military conflict started by President Vladimir Putin in February 2022.

Russia “still has ample fiscal space, which means that fiscal constraints are unlikely to bind military spending for the coming years,” said Bloomberg economist Alex Isakov.