The pressures have not produced an immediate financial crisis. But the combination of rising state borrowing, elevated inflation and weaker growth is making it more difficult for Moscow to maintain high defense spending while also supporting the broader civilian economy.

Russia recorded a federal budget deficit of about 6.46 trillion rubles, or 2.8% of gross domestic product, during the first seven months of 2026, according to preliminary Finance Ministry data. That was well above the 1.6% deficit originally planned for the full year. President Vladimir Putin has said the deficit remains manageable and emphasized Russia’s relatively low government-debt burden.

The gap nevertheless illustrates how quickly wartime spending has altered the government’s fiscal position.

Military spending puts pressure on the budget

Russia has maintained exceptionally high government spending since launching its full-scale invasion of Ukraine in 2022. Defense-related procurement has been a major driver of expenditure, while the government has also expanded subsidies and other support for strategically important industries.

Earlier government budget data showed that federal spending could reach about 45.1 trillion rubles in 2026, compared with 44.1 trillion rubles in the budget law. That would leave a projected deficit of about 4.83 trillion rubles, substantially above the original 3.79 trillion-ruble target.

The higher spending comes as Russia attempts to preserve military production and maintain domestic economic activity at the same time.

That balance is becoming more expensive.

Borrowing is becoming a larger part of the financing equation

With the budget deficit expanding, Moscow has increasingly relied on domestic borrowing rather than drawing entirely on accumulated reserves.

The liquid portion of Russia’s National Wealth Fund has declined substantially since the beginning of the war, reducing one of the government’s traditional buffers against falling energy revenues and unexpected fiscal demands. Analysts at the Centre for Eastern Studies reported that the liquid assets had fallen by more than half after four years of war.

Borrowing, however, comes with a significant cost.

Russia’s central bank has kept interest rates high to contain inflationary pressures. On Sept. 11, the Bank of Russia held its key rate at 14%, saying price pressures had increased significantly during the preceding months. Annual inflation stood at 6.3% as of Sept. 7, while the central bank estimated underlying price growth at an annualized 5% to 6%.

High interest rates raise financing costs for businesses and the government. They can also discourage private investment at a time when Russia needs additional productive capacity outside the defense sector.

Growth has slowed as wartime stimulus loses force

Russia’s economy expanded rapidly during the earlier stages of the wartime spending surge, supported by defense orders, government expenditure and rising wages.

That momentum has weakened.

The Bank of Russia said economic activity was still growing at a moderate pace in the third quarter, but consumer demand was slowing. It also said labor-market tightness was gradually easing.

The central bank’s assessment reflects an economy that remains active but is operating under increasingly difficult monetary and fiscal conditions.

The pressure is also visible in business financing. High borrowing costs make investment more expensive for companies that do not benefit directly from state defense contracts, creating a wider divide between military-linked industries and parts of the civilian economy.

Oil revenues remain an important buffer

Energy exports continue to provide Russia with a crucial source of government revenue.

That has helped Moscow avoid the kind of immediate fiscal crisis that might otherwise accompany a rapidly expanding deficit. Putin said Sept. 17 that Russia expected higher oil prices to increase oil and gas revenues in the coming months and said additional income could help replenish the National Wealth Fund. He also said the government expected the economy to grow by up to 1% in 2026.

The dependence on energy revenue, however, leaves the fiscal outlook sensitive to oil prices and export conditions.

Russia has also faced continuing restrictions on access to Western technology and investment because of sanctions imposed after the invasion of Ukraine. Those constraints can weigh on productivity and long-term investment even when the government has sufficient revenue to maintain current spending.

No immediate collapse, but pressure is accumulating

The current picture is therefore more complicated than either a claim of economic collapse or a claim that Russia faces no meaningful financial problems.

The government continues to pay for the war, and the economy continues to function. Russia retains access to substantial energy revenues, domestic financial institutions and state-controlled economic resources. Putin has publicly argued that the country can manage its deficit without creating a critical threat to economic stability.

At the same time, the fiscal deficit is substantially above its original target, reserve buffers have weakened, interest rates remain high and inflation is still above the central bank’s target.

Those pressures constrain the government’s choices.

The Bank of Russia has warned that fiscal policy is an important factor in monetary-policy decisions. Its current baseline assumes a gradual reduction in the structural primary budget deficit toward zero by 2029, but the central bank said a larger structural deficit could require tighter monetary policy than currently anticipated.

For now, Russia’s wartime economic model continues to function through a combination of military-driven demand, energy income, taxation, borrowing and state intervention.

The emerging question is not whether that model has already failed. It is how much fiscal and monetary pressure can accumulate before the costs of sustaining the war begin to impose more visible constraints on the rest of the economy.

Reporting Credit: Ministry of Finance of the Russian Federation — federal budget deficit and fiscal data; Bank of Russia — key interest rate, inflation, economic activity and monetary-policy assessment; Russian government — 2026–27 fiscal and economic projections.

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