Russia’s federal budget in 2025 is sending mixed signals. On the surface, revenues are climbing—up 20% from January to May compared to the same stretch in 2024. But dig deeper, and a troubling picture emerges: spending is ballooning, and the budget deficit is widening fast. In the first five months of the year alone, the deficit hit 3.4 trillion rubles, or 1.5% of GDP—almost five times higher than the same period last year and already 89% of the full-year target set by the Finance Ministry.
Which begs the question: how can the deficit be spiraling when revenues are supposedly rising? To answer that, we need to unpack Russia’s budget structure against the backdrop of a shifting macroeconomic, political, and geoeconomic landscape.
Revenue Breakdown: Oil and Gas Revenues Slide While the Overall Take Rises
Perhaps the most alarming trend is the slump in oil and gas revenues. In May, they came in at just 513 billion rubles—the lowest monthly figure since November 2022. That’s a 30% drop from May 2024 and a staggering 45% plunge from December 2023.
What’s driving the collapse?
- Urals export decline: With secondary sanctions kicking in, Russia has been forced to offload its oil at steeper discounts.
- Falling sales to China and India: According to Refinitiv, oil shipments to those two countries dipped 12% year-over-year in April and May.
- Logistics and insurance costs ballooning: Sanctions circumvention isn’t cheap. Costs related to the so-called “dark fleet” and mid-sea oil transfers have more than doubled.
- Tax structure changes: Revenues from the mineral extraction tax dropped 18% year-over-year in the first five months, as a result of tweaks in the tax maneuver and reduced tax base indexing.
Once the backbone of the Russian budget—accounting for 36% of federal income in 2021—oil and gas now make up less than 25%. That shift not only signals structural change, but also increased vulnerability: alternative revenue sources are far less resilient to external shocks.
Non-Oil Revenues: A Surge Fueled by Higher Taxes and Inflation
On paper, non-oil revenues are surging. The Finance Ministry reports that from January through May, these revenues reached 8.2 trillion rubles, up 34% year-over-year. The biggest drivers?
- Domestic VAT: up 27% (3.4 trillion rubles)
- Personal income and corporate profit taxes: up 22% and 19%, respectively
- Import duties and fees: nearly 45% higher, despite a dip in overall imports (thanks to a weakened ruble and rising consumer prices)
What’s behind the spike?
- Inflation: Officially pegged at 6.8% year-over-year in May, but consumer price growth tells a grimmer story.
- Aggressive tax enforcement: Authorities have ramped up digital monitoring, leveraging tools like SBiS, online cash registers, and automated VAT deduction tracking.
- Heavier tax burden on business: According to the Center for Macroeconomic Analysis and Short-Term Forecasting, the overall tax load on large businesses has jumped 14% over the past year.
But there’s a catch: this revenue boom isn’t built to last. Businesses are already pulling back. A recent survey by the Russian Union of Industrialists and Entrepreneurs (RSPP) found that 47% of companies froze investment projects in Q1 2025, citing unsustainable fiscal pressure.
Russia’s budget in 2025 is running on fumes from a weakening oil base and an overtaxed private sector. Revenues are up—but not for the right reasons. The spending surge, combined with shaky energy exports and rising inflation, is forcing the Kremlin into a dangerous balancing act. Without structural reforms or a meaningful pivot in energy policy, the deficit may be just the beginning of deeper economic trouble.
The Spending Surge: Guns, Social Guarantees—and a Budget on the Edge
Between January and May 2025, Russia’s federal spending soared to 12.9 trillion rubles—up 2.3 trillion rubles, or 22%, from the same period last year. The breakdown tells a clear story:
- Defense and national security: Over 5.2 trillion rubles, accounting for 40% of total spending—a 33% increase
- Social policy: 3.8 trillion rubles, up 16%
- Government administration and regional subsidies: 1.7 trillion rubles, up 9%
- Infrastructure investment: Down 7% compared to 2024
The sharp uptick in military and security spending stands out. Funding for the war in Ukraine (referred to domestically as a "special military operation"), support for law enforcement and security agencies, military logistics, and mobilization preparedness are all driving the spike. According to a leaked Treasury report from the Federal Antimonopoly Service, defense-related expenditures from January through April alone exceeded 2.3 trillion rubles—nearly double the monthly average in 2022.
Plugging the Gap: Dwindling Reserves and Costlier Borrowing
So how is Moscow financing its widening deficit? Through a patchwork of tools, none of them especially sustainable:
- National Wealth Fund (NWF): Over 1.5 trillion rubles have already been withdrawn in 2025. As of June 1, the fund held 5.4 trillion rubles—only 3.2 trillion of which are liquid.
- Domestic borrowing: The government has issued over 2.8 trillion rubles in federal bonds (OFZs) this year, with yields climbing from 10.6% to 11.8%.
- Tapping reserves of state-owned enterprises and regions: Liquidity is being funneled into major state banks through repo deals and asset consolidations.
The problem? The NWF is a finite cushion, and borrowing is getting more expensive. Analysts at the Gaidar Institute warn that if current spending trends continue, the NWF could be depleted by late 2026. Meanwhile, public debt could hit 20% of GDP—the highest since 1999.
A Global Snapshot: It’s Not Just the Deficit—It’s What You Can Do About It
To understand the real scale of Russia’s fiscal challenge, you need to step outside the numbers and into the geopolitical context. A 1.5% deficit doesn’t sound alarming—especially next to the U.S.’s projected $1.2 trillion shortfall in the first five months of 2025. But it’s not just about how big your hole is. It’s about whether you’ve got the tools, trust, and global credit lines to fill it.
And that’s where Russia comes up short.
By the end of May, Russia’s budget deficit totaled 3.4 trillion rubles—nearly five times India’s. According to data from The Economic Times and India’s NSO, New Delhi posted a 680 billion rupee deficit (roughly 600 billion rubles) over the same period—while maintaining annual GDP growth above 6.8%. Russia, by contrast, is expected to grow by just 1.2–1.4% in 2025, according to the World Bank.
Turkey presents another benchmark. Despite battling 67.7% inflation in May and a chronically fragile lira, Ankara has kept its budget deficit around 1 trillion liras—or about 1 trillion rubles. That’s 3.4 times smaller than Russia’s, even with a comparable economy (by PPP) hovering around $3 trillion. And Turkey is still attracting foreign investment: $19 billion in FDI flowed in during Q1 2025 alone, much of it into infrastructure and logistics projects backed by Qatar and the UAE.
Across the BRICS bloc, the IMF projects an average 2025 deficit of just 0.6% of GDP. Even after expanding the group to include Egypt, Ethiopia, and Iran, the bloc’s budget profiles remain more balanced. China, for example, is forecasting a 3.8 trillion yuan deficit in 2025—about 2.8% of GDP—but it's channeling that gap into infrastructure and tech upgrades. In contrast, over 40% of Russia’s federal spending goes toward defense and internal security. Here, the quality of the deficit is as important as its quantity.
In Western economies, the differences are even starker. The U.S. can rack up a $1.2 trillion deficit in five months—4.1% of GDP—without triggering alarm bells. Why? Because Washington can finance it with Treasuries denominated in the world’s reserve currency. These are assets that every central bank, pension fund, and global investor wants to hold.
U.S. debt, in other words, is a manifestation of global trust. Russian debt? Not so much.
Since 2022, Russian sovereign bonds have been excluded from key global indexes—JP Morgan’s EMBI, Bloomberg Barclays, and others. Foreign holdings of Russian OFZs have plummeted to below 0.2%. The buyers now? State-owned banks, government funds, and the Central Bank itself. It’s a financial echo chamber, not a market.
France, meanwhile, is forecasting a 3.4% budget deficit this year—more than double Russia’s on paper. But it finances that gap through EU-backed instruments like eurobonds, collective guarantees, and access to stabilization funds like the ESM and NextGenerationEU. France is part of a supranational safety net. Russia stands alone.
There’s also the matter of foreign currency borrowing—and here, Russia is boxed in. Since sanctions were imposed in 2022, Moscow has been locked out of international capital markets. Sovereign bonds in hard currency are a nonstarter. Even pivoting to Chinese yuan has proven difficult, thanks to Beijing’s tight capital controls. According to Moody’s Analytics, just 1.1% of Chinese investment in sovereign debt went to Russia in 2024—down from 5.4% in 2021.
In short, Russia can’t plug its deficit with global credit like the U.S., India, or even Brazil. Every ruble of red ink must be covered internally—by dipping into reserves, printing money, or forcing state-controlled banks to absorb more debt.
A 3.4 trillion ruble deficit over five months isn’t catastrophic in isolation. But in comparative terms, Russia’s fiscal position is unusually fragile. It’s not just economically risky—it’s structurally dangerous. Cut off from global capital, spending heavily on defense, and saddled with an investment climate in deep freeze, Moscow is drifting toward budgetary isolation.
And that isolation carries long-term consequences. Even if there’s no default and no immediate crisis, the state may lose its ability to run effective economic or social policy. That, more than any single figure, is the real warning flashing on the Kremlin’s dashboard in 2025.
Stability Under Pressure: Russia’s 2025 Budget at a Crossroads
Russia’s financial architecture in 2025 resembles a structure propped up by beams that look sturdy on the outside—but rest on a foundation slowly eroded by inflation, militarization, mounting debt, and depleting reserves. On paper, the numbers point to a growing economy. But beneath the surface, the stress lines are hardening into something far more permanent—and potentially dangerous.
1. Revenue Growth Isn’t Real Stability
Yes, budget revenues climbed 20% in the first five months of 2025, reaching 11.5 trillion rubles. But that growth is largely a mirage. Inflation during the same period ran at an annual rate of 6.8%, with real consumer prices—especially for non-food goods—rising by 8.4%. Higher prices mean higher VAT and excise revenue, but this isn’t growth driven by a more productive economy. It’s inflation-driven indexing.
At the same time, Russia’s tax machine is in overdrive. The government expanded the list of individuals forced to shift from “self-employed” to full-fledged private entrepreneurs—bringing new obligations like mandatory social contributions. Small extractive businesses face tougher mineral tax norms, and a new scale has been introduced for taxing corporate “windfall profits.” According to analysts at the Center for Strategic Research, this isn’t broadening the tax base—it’s squeezing more from the same narrow band, mainly by ramping up enforcement. As inflation cools or compliance weakens, the budget risks slipping back into the red.
2. A War-Built Budget That Crowds Out the Future
Russia’s 2025 budget is being swallowed by military and security spending. According to official Treasury data, over 40% of federal outlays—roughly 5.2 trillion rubles—went to “national defense” and “national security” between January and May. That’s the highest share of military spending during peacetime in Russia’s post-Soviet history. In 2010, the defense budget took up just 12%. By 2020, it had climbed to 22%. By 2023, it hit 32%. Now, it's over 40%.
What’s sacrificed in return?
- Infrastructure funding is down 7% from last year. Major projects like the expansion of the Baikal-Amur Mainline and Trans-Siberian Railway have seen cuts of up to 28%.
- The flagship program for digital government transformation received just 60% of its original allocation.
- Spending on science and education rose by only 3.2%—not even enough to keep pace with inflation, meaning a net real cut.
This skewed allocation creates what economists call budget inertia: the higher the share of military spending, the harder it becomes to shift resources toward actual growth. Some analysts are already drawing comparisons to the Soviet Union of the 1980s, when military expenditures ate up over 17% of GDP even as industry stagnated and innovation dried up.
3. The Deficit’s Already Here—And It's Growing
Here’s the red flag: by June 10, the Finance Ministry confirmed that Russia’s federal deficit had already hit 3.4 trillion rubles—nearly 90% of the 2025 target. But spending typically surges in the second half of the year. July through September sees major regional transfers. October through December brings massive military procurement and the final push on national projects. Analysts at ACRA expect the deficit to climb to between 5.1 and 5.3 trillion rubles—well over 2% of GDP.
That leaves two bad options:
- Austerity: Cutting non-essential spending, which would hit the regions first. Without federal support, they’ll have to turn to debt or suspend development programs.
- New or higher taxes: In early June, the Finance Ministry floated the idea of a temporary personal income tax hike on those earning more than 10 million rubles a year. Fuel and alcohol excise rates are also on the table. But experts warn: there’s only so much blood you can squeeze from a stone. Constant tax hikes eventually backfire—eroding compliance and pushing activity into the shadows.
4. Shrinking Reserves, Pricier Debt
As of June 1, Russia’s National Wealth Fund had just 5.4 trillion rubles left, with only 3.2 trillion in liquid assets. It’s already burned through 1.5 trillion this year alone. At the current burn rate, the fund could be depleted by the end of 2026—just as the need for gap financing peaks.
Meanwhile, borrowing is getting harder. The Finance Ministry is struggling to sell government bonds. Yields on OFZs rose from 10.6% in January to 11.9% in May. And the demand is coming from a shrinking circle: mostly state banks, themselves propped up by Central Bank refinancing. It’s a closed loop: the government borrows from state banks, who borrow from the Central Bank, who holds the reserves that the government spends.
That kind of financial ecosystem can function—for a while. But it raises the risk of inflation and shatters investor confidence over time.
Case in point: foreign investors have fled. As of May 2025, non-residents held less than 0.2% of Russia’s domestic debt—a dramatic fall from over 25% in 2018. The entire financial system has turned inward. Without new capital, new trust, or a clear exit strategy, Russia is left to circulate the same money through fewer hands.
Russia’s 2025 budget isn’t facing an imminent collapse—but it’s quietly bleeding out. A fragile tax base, military-heavy spending, limited reserves, and expensive borrowing have combined to lock the country into a fiscal dead end. There’s no crisis today. But there’s also no space to maneuver.
That’s the real risk.
Even without a default or a sudden shock, Russia is inching toward strategic stagnation—a scenario where the state still functions, but increasingly loses the capacity to shape the future. And in that sense, the numbers aren’t just an accounting issue. They’re a warning flare.
Russia’s 2025 Budget Outlook: Navigating Between Oil Winds, Fiscal Traps, and Geopolitical Fog
As global markets wobble under the weight of volatility, geopolitical tensions, and tightening capital flows, Russia’s fiscal trajectory is veering into high-stakes territory. By the end of May 2025, the federal deficit had already hit 3.4 trillion rubles—or 1.5% of GDP—burning through nearly 90% of the year’s projected cap (set at 3.8 trillion, or 1.7% of GDP). If current trends hold, the second half of the year will be a pressure test for Russia’s budgetary resilience.
Based on data from the Finance Ministry, Rosstat, the Central Bank, and independent sources like the Gaidar Institute, CMASF, ACRA, Bloomberg Economics, and the IIF, here’s a three-scenario forecast for what’s coming: optimistic, baseline, and pessimistic.
Optimistic Scenario: Oil Comes to the Rescue
Conditions for this outcome:
- Urals crude rebounds to $85/barrel, helped by further OPEC+ production cuts (especially from Saudi Arabia and the UAE) and resurgent Asian demand, particularly from India and China.
- Ruble stabilizes around 85–87 per dollar, supported by reduced capital flight and continued export revenues from gold, coal, and fertilizers.
- Inflation stays within 6–7%, while the Central Bank maintains a tight monetary stance (key rate at 16%), balancing consumer demand and price stability.
Projected outcome:
In this case, the oil and gas sector could pump an additional 800–900 billion rubles into the budget during H2 2025. A stronger ruble would also help contain import-driven inflation. This could allow Moscow to limit its reliance on the National Wealth Fund. According to CMASF estimates, the full-year deficit would likely remain within the original 3.8 trillion ruble target, with NWF drawdowns capped at 2 trillion—leaving about 3.5 trillion in liquid reserves intact.
Wild card risk: geopolitics. Any fresh round of Western sanctions or shipping restrictions could blow this fragile balance apart overnight.
Baseline Scenario: Treading Water Amid Constraints
Conditions for this outcome:
- Oil prices hold between $72–78/barrel, while the ruble drifts weaker—hovering in the 89–92 per dollar range.
- Borrowing conditions remain tight, with the Finance Ministry unable to issue more than 600–700 billion rubles in OFZs monthly without pushing yields sharply higher.
- Inflation creeps toward 8%, while consumer demand slumps, stifling tax revenue growth—especially VAT and excise collections.
Projected outcome:
In this middle-of-the-road case, the year-end deficit could swell to 5 trillion rubles, or around 2.2% of GDP. That’s likely to force the Central Bank into partial monetization—directly purchasing government bonds to cover shortfalls. While not yet official policy, the idea has been floating around Moscow since fall 2024 and has drawn harsh criticism from liberal economists like Sergey Guriev and Vladimir Milov for its inflationary potential and risk to investor trust.
A tax clampdown is also likely:
- More self-employed workers may be roped into formal taxation.
- Excises on fuel, alcohol, and tobacco could rise.
- Payroll tax thresholds may be indexed.
The International Institute of Finance (IIF) estimates that such moves might generate an extra 300–400 billion rubles—not nearly enough to bridge the gap, but enough to heighten business frustration.
According to recent surveys by RSPP and Delovaya Rossiya, 63% of business leaders are already considering relocating parts of their operations to friendlier jurisdictions like Armenia, Kazakhstan, or Belarus to escape mounting fiscal pressure.
Pessimistic Scenario: Stagflation, Sanctions, and the Risk of a Structural Breakdown
Conditions for this scenario:
- Tighter Western sanctions. The U.S. and EU roll out a new wave of restrictions targeting dual-use technologies and impose financial sanctions on major Russian banks like MKB and Alfa-Bank. This chokes off key refinancing channels for import-export operations and stifles trade liquidity.
- Sharp decline in energy exports. China cuts Russian oil imports by 20% as it pivots toward cheaper Middle Eastern supply, while India increasingly favors Saudi Arab Light, leaving Russia scrambling for buyers.
- Domestic political turbulence. A surge in public protests and fiscal strain at the regional level forces the Kremlin to ramp up federal transfers and law enforcement spending—further bloating the state budget.
Projected outcome:
Under these stressors, Russia’s federal deficit could blow past 6 trillion rubles—over 2.5% of GDP. Withdrawals from the National Wealth Fund would soar to 3.5 trillion rubles, leaving less than 2 trillion in liquid reserves—a critical threshold. Faced with this shortfall, the government would likely initiate emergency budget cuts, even slashing “protected” spending lines like regional subsidies, SME support programs, and national development projects.
The fallout would be swift. According to ACRA and RAEX, even a temporary freeze on national projects would shave 0.6–0.8% off GDP growth and push unemployment up to 6.5%.
At the same time, the banking sector would face a growing liquidity crunch. Alarmed by sanctions, banks would pull back on long-term lending. Interbank rates could spike to 18%, and the Central Bank would be forced to step in with additional refinancing tools—injecting liquidity at the cost of accelerating the money supply, and potentially igniting uncontrolled inflation.
In this scenario, Russia would spiral into stagflation: rising prices coupled with a shrinking real economy. The IMF warns that under a full-blown sanctions escalation, Russia’s GDP growth in 2025 could stall at just 0.2%, with a real risk of recession in 2026.
By mid-2025, Russia’s budget no longer reflects a growth economy. It has morphed into an emergency management tool—designed to absorb shocks from sanctions, geopolitical friction, and domestic unrest. That transformation carries real costs.
What the system faces now isn’t just a revenue gap—it’s a strategic misalignment. Russia’s financial model is increasingly geared toward short-term militarized responses and stopgap measures. But without a reset—without rethinking the role of public investment, innovation, and economic diversification—the foundations of that system will come under heavy strain by 2026.
The current structure is deeply vulnerable. As geopolitical tension lingers and domestic policy options narrow, fiscal stability depends on a volatile mix of external variables: oil prices, capital flows, political risks in Asia, and the tolerance of an overtaxed domestic economy.
The optimistic scenario remains a narrow window of opportunity. The baseline path is difficult, but still plausible. The pessimistic one? It’s not some distant “black swan.” It begins to materialize when two or three shocks coincide—and given the pace of sanctions and shifts in the global oil market, that’s no longer a remote possibility.
The takeaway: Russia isn’t just facing a budget shortfall. It’s facing a deeper question—whether the emergency-response model of public finance is still viable in a world where resilience, not rigidity, determines survival. If that question goes unanswered, 2025’s fiscal crisis could be the opening chapter of a far more disruptive economic decade.