Russia Faces $28 Billion War Spending Deficit

Russia's escalating war costs may lead to a budget deficit of up to $28 billion this year, as indicated in a letter from Finance Minister Anton Siluanov obtained by the Financial Times. The Finance Ministry's February assessment projected that war-related spending overruns could reach 2 trillion rubles this year.

Under a "negative scenario," this figure could surge to as much as 4 trillion rubles ($56 billion) in 2024. The letter further warns that spending overruns are anticipated to reach 4 trillion rubles annually in both 2027 and 2028. To mitigate these mounting expenses, the government is being pressed to freeze planned non-military expenditures: 2.9 trillion rubles this year, 5.4 trillion rubles in 2027, and 7.1 trillion rubles in 2028.

This request highlights Russia's increasing financial strain in funding the conflict, despite allocating a significant portion of its budget, nearly 40% of the 2026 budget, or 16.84 trillion rubles ($238 billion), to defense and security. The Kremlin had initially projected a budget deficit of 3.8 trillion rubles ($53 billion) for 2026. However, the deficit already reached 5.9 trillion rubles ($82 billion), or 2.5% of GDP, in the first four months of this year, marking the largest deficit since the full-scale invasion began in 2022.

While a recent rise in oil prices, exceeding $100 per barrel due to geopolitical tensions, has provided some additional revenue, it is unlikely to fully offset the rapidly growing costs of the war in Ukraine. This positive impact is further diminished by government subsidies to domestic oil companies aimed at stabilizing fuel prices and a strong ruble, which has hovered near a three-year high against the US dollar.

The increasing war expenditure exacerbates Russia's already weak economic outlook. The Ministry of Economic Development recently downgraded its economic growth forecast for 2026 to 0.4%, with projections for GDP growth in subsequent years set at 1.4% for 2027 and 1.9% for 2028, significantly lower than previously anticipated.

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