Russian budget deficit just hit trillions, creating a massive wartime budget gap - RFU News

[TexasTowelie]

Today, there is interesting news from the Russian Federation.

Here, Russia’s state budget deficit has expanded to a point where it can no longer be disguised. The Russian government is running out of accounting maneuvers or optimistic projections, while the war continues to burn through even the previously massive rainy-day reserves.

After four consecutive years of wartime deficits, 2025 closed with a shortfall of roughly 5.6 trillion rubles or roughly 73.4 billion US dollars, which is the largest nominal deficit in modern Russian history. For 2026, the official plan assumes a smaller gap, but even Russian officials privately acknowledge this figure is completely unrealistic. With spending pressures mounting, the Kremlin is now scrambling to find up to 1.2 trillion rubles or 16 billion US dollars in additional revenue just to stabilize key budget indicators, on top of an already revised deficit target. Declining energy income and sanctions-driven discounts on oil exports have exposed how fragile Russia’s fiscal balance has become, with something presented as a manageable deviation now being a structural hole.

The core reason for this implosion is that the war is far more expensive and far longer than originally assumed. Russia entered the invasion expecting a short campaign with limited financial strain. Instead, it faces a sustained, high-intensity conflict that demands constant funding for weapons procurement, personnel salaries, compensation payments, and logistics. These costs have compounded year after year, while the revenue side of the budget has deteriorated. Energy exports, long the backbone of state finances, are under pressure, while non-energy sectors cannot compensate on a comparable scale, and economic growth remains weak, limiting tax collection.

To bridge earlier gaps, the government leaned heavily on its rainy-day buffers. The National Wealth Fund, once a symbol of financial resilience, has been steadily drained, as before the war it held 113 billion US dollars, and by January 2026, that amount had shrunk to 52 billion US dollars. However, much of what remains is tied up in illiquid investments, reducing its usefulness as a stabilizer. Gold reserves have also been partially liquidated, used as barter trade for civilian and military imports. Borrowing and money printing filled part of the gap, but at a growing cost. Domestic debt issuance has surged, reaching 61 trillion rubles by September 2025. Interest rates remain high at 16%, and despite efforts to be lowered, it compares terribly to the 3 to 4% in the United States and 2.15 percent in the EU. Raising taxes risks deepening stagnation and public dissatisfaction, while printing more money fuels inflation and undermines the stability of the ruble. The most logical thing, cutting military spending, is politically implausible, as the Russian leadership insists on continuing the war, even though it is left with a narrowing set of imperfect tools, none of which can realistically close a gap of this magnitude without broader economic damage.

As a result, revenue streams are no longer sufficient to cover the combined burden of war and domestic obligations. Defense spending, security services, and war-related compensation compete directly with pensions, healthcare, education, and regional subsidies. For households, the effects appear through inflation and reduced public services, while for businesses, higher interest rates and constrained credit suppress investment. Analysts increasingly point out that the state budget is approaching exhaustion, not because Russia lacks resources in absolute terms, but because the structure of spending has become unsustainable, with almost 40 percent of expenditure tied to war, which leaves little room to absorb shocks or adapt to adverse conditions.

This fiscal stress is also feeding political pressure, as sustaining a conflict that consumes such a large share of national resources becomes harder to justify as living standards stagnate and future growth prospects erode. The longer the war continues, the more acute the trade-off becomes between military ambition and domestic stability, with voices of criticism already to be heard even in the Russian parliaments.

Overall, Russia’s time is running out financially. The widening deficit, depleted reserves, and limited policy options suggest that the current trajectory cannot be sustained indefinitely. In this context, renewed talk of negotiations and diplomatic engagement appears less like confidence and more like a bid to buy time. For the Russian leadership, any pause should be seen as a chance to slow the fiscal bleed and prevent the war from collapsing the budget entirely. Whether it perceives it like this remains uncertain, but the war has pushed Russia’s finances to a breaking...

[enid602]

1. Trillion

A trillion in rubles, that is.