Moscow faces a budget deficit it can’t hide

The country’s public finances are buckling under the weight of military spending related to the war in Ukraine, which absorbed approximately 46% of the federal budget in the first quarter of 2026, compared to 22% in 2022, according to information from The Insider.

To keep these costs well hidden from public view and avoid revealing the full extent of the situation, Moscow is concealing part of this spending under other budget line items. Financial opacity is only increasing.

As a result, the cumulative deficit for the first six months of 2026 amounts to no less than 5,700 billion rubles (62.5 billion euros)—a 70% increase compared to 2025. Furthermore, this deterioration is exacerbated by a 23% drop in oil and gas revenues over the same period (3,700 billion rubles, or 40.5 billion euros).

To plug this gap—without relying on favorable energy prices—the Russian government is increasing pressure on the domestic economy by raising VAT, for example. And despite this tax hike, the economy is experiencing a sharp slowdown: GDP growth stagnated at 0.2% over the first five months of 2026, investment plummeted by 14.3%, and the share of loss-making companies rose from 30% in 2024 to 35% in 2026.

Uncertainty and concern on the horizon

Faced with this worrying situation and the risk of inflation—fueled by public spending—the Central Bank of Russia decided to halt the decline in its key interest rate (set at 14.25% in June). This cautious approach has led to a 20% decline in the Moscow Stock Exchange over the past three months. Furthermore, a new law now grants the Russian Ministry of Finance greater freedom to adjust budgetary parameters—including spending, deficits, and borrowing—without parliamentary oversight.

As The Insider points out, this change further exacerbates the lack of transparency and leaves investors in the dark. While the Kremlin can still draw on its reserves to finance its deficit and avoid an immediate budget crisis, the unpredictability of its financial management remains an increasingly pressing source of concern for the markets.