Russia moves to strict austerity on civilian spending to preserve war funding

The Russian government introduced a strict austerity regime in April after a liquidity shortage arose in the federal treasury for timely execution of all necessary payments. Funding for a number of budget areas was cut by 35%, and federal agencies were instructed to prepare 15% staff reductions.

Bloomberg reports this, citing people familiar with the situation. According to them, liquidity problems arose as early as the beginning of 2026, but peaked in April.

Then Russian Finance Minister Anton Siluanov warned Prime Minister Mikhail Mishustin that available funds might not be enough to carry out all budget payments on time. The federal budget balance on the single treasury account dropped to minus 5.5 trillion rubles, or approximately $65 billion.

Former Russian Deputy Finance Minister Oleg Vyugin called the negative federal budget balance on the treasury account an unusual situation. According to him, for many years the authorities maintained positive balances to ensure uninterrupted financing of expenditures.

After the April crisis, the government limited spending in most areas. According to Bloomberg, the 35% reduction does not apply to war-related spending, salaries of military and public sector workers, social programs, financial support for regions, and public debt servicing.

Federal authorities were also ordered to postpone all non-essential spending and prepare a 15% reduction in personnel.

However, agency sources do not consider the budget situation critical. According to their assessment, the Russian authorities still have the ability to finance the war against Ukraine for several years. At the same time, Bloomberg previously reported that representatives of the Finance Ministry and central bank warned the Kremlin that the current level of military spending is becoming financially unsustainable.

Problems arose even amid rising oil revenues. In spring and summer, Russia received additional revenues due to higher energy prices amid the conflict around Iran and the Strait of Hormuz, but this did not stop the growing deficit.

In the 2026 budget, the Russian authorities planned a deficit of about 3.7 trillion rubles. However, by the end of the first quarter it reached approximately 4.5 trillion rubles, by the end of the second quarter - 5.7 trillion, and in early August Bloomberg estimated it at 6.5 trillion rubles, or 2.8% of GDP. The official target for the year was 1.6% of GDP.

The Moscow Times draws attention to even more recent data from the Russian "Electronic Budget" system: as of August 24, the current gap between revenues and expenditures was 8.654 trillion rubles. However, this figure did not yet include the bulk of August tax revenues, which come at the end of the month, so the final figure for August will be lower.

According to internal estimates of the Russian authorities, by the end of the year the deficit could be 3.2-3.8% of GDP. The upper limit of such a forecast would mean a return of the indicator to approximately the level of the pandemic year 2020.

The introduced austerity has already made it possible to avoid an even faster deterioration. According to Bloomberg, in the spring internal calculations predicted that the deficit could reach 9 trillion rubles as early as by the end of June.

At the same time, Russia is increasingly covering the lack of funds through domestic borrowing, despite the high cost of debt service. This increases the long-term burden on the budget, while military spending remains one of the areas protected from cuts.

Based on: Bloomberg, The Moscow Times