12/19/2025
BUDGET DEFICITS IN RUSSIA
The last few days we have been talking about issues that would affect the ability of Russia to finance its war against Ukraine.
These items included secondary sanctions, attacks on oil and gas infrastructure, as well as attacks on Russia’s shadow fleet.
But the question still remains as to what impact they have had on Russia’s national budget?
Has Russia been able to continue to finance it war against Ukraine?
Or, have these moves created budget deficits for the Russian government so as to impact Russia’s ability to sustain its war?
Russia’s full-scale invasion of Ukraine has significantly strained its federal budget, leading to sustained and rising deficits.
Major factors include soaring defense expenditures, declining oil and gas revenues due to sanctions and Ukrainian attacks, and increased tax burdens on the public.
Russia’s defense budget surged to approximately 13.5 trillion rubles (~$161 billion) in 2025—about 7.2% of GDP, accounting for 37% of federal expenditures—and plans to reduce it slightly to 12.6 trillion rubles in 2026.
Between 2022 and 2024, total fiscal injections—including off-budget support—exceeded 10% of GDP, underscoring the heavy financial commitment to the war.
In 2024, the deficit exceeded 3 trillion rubles (~$34 billion)—around 1.7% of GDP, far above the government's target of 0.9% .
By mid-2025, the shortfall reached 4.88 trillion rubles (~$61 billion)—2.2% of GDP—surpassing the entire year’s forecast of 3.8 trillion rubles; analysts project the year-end deficit could exceed 8 trillion rubles.
For 2026, forecasts envision a sustained deficit around 2.6% of GDP, the highest since the war began.
Oil-and-gas revenues—the fiscal backbone—fell 22% year-over-year in the first nine months of 2025, with monthly export earnings in November hitting their lowest since early 2022.
The Mid-2025 deficit was partly blamed on a nearly 19% drop in energy income, amplifying the impact of militarized state spending.
To counter deficits, the government increased VAT from 20% to 22%, imposed higher tax rates, and expanded borrowing.
Meanwhile, GDP growth slowed to about 1% in 2025, down from 4.3% in 2024, with investment contracting—indicating deeper economic stress.
The National Wealth Fund is getting near to depletion.
The Russian government has engaged in heavy borrowing.
In essence, Russia’s war effort is directly fueling its fiscal imbalances—through both increased wartime spending and diminishing revenues—creating persistent and historically high budget deficits.
Tomorrow we will explore how these deficits are directly affecting the Russian military budget.