Vladimir Putin’s war chest may not be as bottomless as the Kremlin pretends. Russia has quietly tripled its projected budget deficit for 2025 to 1.7% of GDP — a sobering signal that the financial cost of its war in Ukraine, coupled with the enduring weight of Western sanctions, is beginning to chew through Moscow’s carefully curated image of economic resilience.
The revised figure, disclosed this week by Russia’s Finance Ministry, marks a sharp climb from the initial deficit target of 0.5%. The announcement, which was not accompanied by any fanfare, comes amid a broader reconfiguration of state spending priorities, with more roubles flowing toward the military-industrial complex and increasingly less toward social services, infrastructure, and pensions.
For a country accustomed to fiscal conservatism — and, in recent years, proud of running budget surpluses — the move is uncharacteristic. It also flies in the face of President Putin’s repeated assertions that Russia is financially insulated from the effects of its ongoing military operation and can outlast the West in a war of economic attrition.
That narrative now appears more fragile than ever.
War at Any Cost
Russia’s invasion of Ukraine has cost the Kremlin dearly — not just in manpower and hardware, but in treasure. Military spending surged past 6% of GDP in 2024 and is expected to remain at or above that level for the foreseeable future. Defence-related industries have become the centrepiece of the Russian economy, reviving Soviet-style command planning in sectors critical to the war effort.
This comes at a cost. Russia is increasingly relying on its sovereign wealth fund, the National Welfare Fund, to plug budgetary holes. But that reserve, once swollen with oil and gas revenues, is shrinking. According to figures from the Finance Ministry, the fund stood at just over $90 billion in April — down from more than $170 billion before the invasion in February 2022.
Meanwhile, sanctions have hampered Russia’s ability to access foreign capital, cutting it off from international debt markets and limiting options for conventional deficit financing. As a result, the Kremlin has turned inward — raising taxes on businesses, forcing state-owned enterprises to buy government bonds, and even floating the possibility of “voluntary contributions” from wealthy elites, a euphemism widely understood to mean coerced donations.
“Russia is trying to fund a war economy on a peacetime tax base,” says Anders Åslund, a senior fellow at the Stockholm Free World Forum. “Eventually, that contradiction catches up.”
Inflationary Pressures and Structural Weaknesses
At street level, the effects are already being felt. Inflation is rising, despite tight monetary policy from the Central Bank. The rouble remains volatile, with its value increasingly dictated by capital controls rather than market confidence. Consumer confidence, never strong since the invasion began, is sliding further, particularly in the country’s less-developed regions.
Russian officials have sought to portray the revised deficit as a controlled and manageable deviation — a necessary investment in national security. But the opacity surrounding state finances makes independent verification difficult. The government stopped publishing detailed breakdowns of military spending in early 2023, citing wartime secrecy. What remains is guesswork, punctuated by periodic leaks and opaque statements from officials.
Even if Moscow succeeds in financing this year’s spending binge, the long-term implications are troubling. Analysts point to the risk of crowding out private investment, further entrenching state control over the economy, and laying the groundwork for a post-war crisis of debt and stagnation.
Strategic Overreach?
The revision of the deficit target also raises questions about Moscow’s strategic calculus. If the war is indeed expected to grind on for years — as Putin and his allies increasingly suggest — then current fiscal trends are not sustainable without deeper structural reform or significant spending cuts elsewhere.
And yet, the Kremlin shows no signs of blinking. On the contrary, it has doubled down on war rhetoric, state propaganda, and repression of dissent. Economic cost, it seems, is secondary to political survival.
But history offers cautionary tales. The Soviet Union, too, diverted massive resources to military endeavours while masking its domestic fragilities — until the façade crumbled. While modern Russia is not the USSR, and Putin is no Gorbachev, the warning signs are there.
“The Kremlin still believes it can outlast the West,” says a European diplomat stationed in the Baltics. “But if economic rot sets in, it may not be the sanctions that topple Putin — it may be his own unsustainable budget.”
