Senior officials have warned President Vladimir Putin that sustaining defence spending at current levels would imperil the Russian economy, marking the first major sign that the Kremlin's consensus on the war in Ukraine is fraying.
Fiscal Concerns Mount
According to Bloomberg News, the country's top finance ministers and the central bank are urging the government to cut spending or risk the deficit spiraling out of control. Russia's heavily sanctioned economy has reportedly depleted fiscal reserves after more than four years of the full-scale invasion.
Russia is expected to exceed its budget by 2 trillion rubles (C$37 billion) in 2026, which could double in a negative scenario, according to a letter from Finance Minister Anton Siluanov obtained by the Financial Times. Further deficit-financed overspending to the tune of 4 trillion rubles was also expected in 2027 and 2028, he wrote. Russia allocated almost 40 per cent of this year's budget, about 16.84 trillion rubles ($316 billion), to spending on defence and security.
Reserves Depleting
The current budget was planned with eventual reductions to defence spending, which Putin has so far resisted, asking ministers to look for efficiencies elsewhere. In January, the finance ministry asked government agencies to reduce non-essential spending by 10 per cent but excluded social and defence spending, according to the Financial Times.
Reserves are not endless, Siluanov said in an interview last week with the Russian newspaper Kommersant, urging restraint, according to Bloomberg. Siluanov's warning comes as Russia's rainy day stash, the National Wellbeing Fund, has depleted by about 60 per cent since before the invasion in 2022.
Economic Slowdown
Despite a boost from higher oil prices, the Russian economy has run out of momentum. In May, the country's economic ministry downgraded its gross domestic product forecast for 2026 to 0.4 per cent from the previous estimate of 1.3 per cent. Russia's war economy had previously confounded expectations, growing in 2023 and 2024 before slowing in 2025 to one per cent.
Officials have blamed the unprecedented sanctions, a strong rouble hurting exports, and double-digit interest rates.
Diverging Views
Sources tell Bloomberg that some officials in Putin's circle who continue to support his war agenda are urging that military expenditure be protected, arguing that it would hurt businesses that rely on military contracts.
Russia has also considered leveraging its commodity-heavy economy by implementing a windfall tax on producers and banks to fill its budget gap, Bloomberg previously reported.
In April, Putin publicly dressed down officials and asked them to explain the slowdown in manufacturing, industrial production, and construction. These are objective circumstances, of course, but it is clear they are far from the only factors determining business and investment activity in the country, he said, according to the Moscow Times.
