Russia has imposed strict limits on government spending following an April liquidity crisis that highlighted the rising cost of the war in Ukraine. The austerity regime was introduced after Finance Minister Anton Siluanov warned Prime Minister Mikhail Mishustin that the government might run out of funds to make all necessary payments that month. The balance on the Treasury’s single account of the federal budget turned negative, reaching 5.5 trillion rubles (65.3 billion dollars). This was reported by sources close to the government who asked not to be named because the information is not public.
Liquidity problems had been present since early 2026, but the pressure intensified in April, even though Russia’s oil revenues rose to a six‑month high after a sharp jump in energy prices amid instability linked to the war with Iran. A negative balance on the Treasury’s single account is unusual, noted former Deputy Finance Minister Oleg Vyugin. He explained that for many years the government consistently maintained positive balances to ensure uninterrupted financing of budget expenditures. “The Treasury traditionally invested temporarily free funds in various financial instruments as part of liquidity management,” he said. “This was standard practice for decades.”
While the situation creates difficulties for the government, it is not critical, according to informed sources, because the budget can continue to fund military spending for several more years. Bloomberg previously reported that officials from the Ministry of Finance and the central bank warned the Kremlin that military expenditures had reached a level Russia could not sustain. This points to internal disagreements, as defense officials have pressed for additional funding. The financial warnings came as Ukraine launched long‑range drone strikes deep inside Russian territory, targeting Moscow and energy facilities. President Vladimir Putin downplayed the impact of Ukrainian attacks on the Russian economy, and the Kremlin is now preparing for an escalation of attacks on Ukraine.
Severe austerity measures and spending cuts
Facing growing pressure on the budget, the government has trimmed other obligations to preserve liquidity and curb the federal deficit. The austerity measures introduced since April have cut funding in budgetary areas by 35 %, except for war spending, salaries of public‑sector workers and military personnel, social programmes, support for regional authorities, and debt service. The government also instructed federal agencies to prepare for a 15 % staff reduction and to postpone all secondary expenditures, sources said. The government and the Ministry of Finance press services did not respond to requests for comment.
Liquidity problems emerged against the backdrop of a widening budget deficit, despite an unexpected rise in energy revenues caused by the crisis around Iran and the Strait of Hormuz. The deficit grew to 6.5 trillion rubles (77.2 billion dollars), or 2.8 % of Russia’s GDP, far above the target of 1.6 % set for 2026 in the budget law. The Ministry of Finance partly attributed the increase to early financing of some expenditures at the start of the year. However, Russian legislators hastily adopted amendments in June that allow the government to raise spending without the prior approvals normally required for a budget revision.
Deficit forecasts and debt growth
According to the ministry’s latest internal forecasts, the deficit is unlikely to shrink by year‑end and may even rise further. Sources project that in 2027 the deficit could range from 3.2 % to 3.8 % of GDP. The upper end would bring the 2026 deficit to the level recorded in 2020 during the COVID‑19 pandemic. Russia is also accumulating costly domestic debt as the Kremlin relies increasingly on borrowing to finance the war, now in its fifth year with no end in sight. The austerity measures have so far prevented the deficit surge predicted in April, when internal estimates suggested the budget gap could reach 9 trillion rubles (107 billion dollars), or 3.8 % of GDP, by the end of June.
Source: Bloomberg
