Russia faces cash crunch, imposes strict spending cuts amid Ukraine war costs

Russia has imposed stringent spending restrictions following an April liquidity crisis that exposed the mounting financial burden of its war in Ukraine. Sources close to the government revealed that Finance Minister Anton Siluanov warned Prime Minister Mikhail Mishustin that insufficient cash was available to meet all necessary payments on time.

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There would not be enough cash that month to make all the necessary payments on time.

The federal budget registered a deficit of 5.5 trillion rubles ($65.3 billion) in its unified Treasury account, a central hub for federal revenues and expenditures. This negative balance is highly unusual, as the government has historically maintained positive cash balances to ensure smooth budget financing. Former Deputy Finance Minister Oleg Vyugin noted that the Treasury traditionally invested temporarily idle funds in various financial instruments as part of its liquidity management, a practice sustained for decades.

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A negative budget balance in the unified Treasury account is an unusual occurrence.

While the liquidity situation presents challenges, it is not considered critical, as the budget can reportedly sustain war spending for several more years. This comes as Bloomberg previously reported that policymakers from the Finance Ministry and central bank had cautioned the Kremlin about the unsustainability of war expenditures, indicating internal disagreements with defense officials pushing for additional funding.

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For many years, the government has consistently maintained positive cash balances so that budget spending is financed smoothly.

Russia has been depleting its emergency reserves in the National Wealth Fund to cover budget deficits driven by massive war spending and declining energy revenues. The fund's overall balance dropped by $9.24 billion in July to $159.3 billion, its lowest since September of the previous year. Easily accessible assets within the fund have also decreased significantly to $46.2 billion. Furthermore, Russia's gold sales have reduced its reserves to their lowest level since January 2020, although its total international reserves saw a slight increase in the week of August 21.

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Traditionally, the Treasury has invested temporarily idle funds in various financial instruments as part of its liquidity management.