As economic growth stalls and revenues decline, Moscow is no longer able to pump up the fiscal stimulus that fueled earlier wartime expansion, instead embracing austerity measures that threaten to further strangle the civilian economy.
While the budget figures are not final — the fiscal plan requires parliamentary approval — Moscow’s financial strategy for the fifth year of war is unmistakable.
Amid slower growth and lower revenues, the Kremlin will attempt to muddle through without major expenditure increases, instead passing the war’s costs to the whole of society.
For three years, rising fiscal spending stimulated both economic growth and climbing incomes. However, due to physical constraints including labor force shortages, sanctions, and limited production capacity, this high government spending has also fueled inflation, which the Central Bank is combating with prohibitively high interest rates.
This policy has yielded results — inflation slowed to 8.1% in August, albeit while remaining higher than the Bank of Russia’s target. But the side effect of monetary tightening is the suffocation of lending, both corporate and private, notably in the civilian sector. The high rate and overly high government spending became a means of suppressing civilian demand and of transferring resources towards the military economy.
The economy, with the anticipated exception of the defense industry, is grinding to a halt. The new economic outlook reflects this reality: the economy is entering stagnation.
Officials now expect 1% growth this year, down from the 2.5% predicted in April. For 2026, the projection is 1.3% rather than 2.4% from the previous forecast. Expectations for investment, real incomes, and industrial production have also been cut. A lower inflation forecast is theoretically good news, but it has been achieved largely by removing budget stimulus and imposing high interest rates. Thus, prices are stabilizing due to demand suppression, not increased production.
A slowing economy combined with low oil prices and a strong ruble continues to limit budget revenues, which in turn calls for fiscal frugality.
For 2026, the government expects to spend 44.07 trillion rubles ($530bn). Accounting for inflation, forecast at 6.8% by year-end, spending will be virtually unchanged from 2025 (41.47 trillion rubles) and just 2% higher than what the government projected last year for 2026 . While keeping spending under control represents a significant achievement for a wartime government’s bookkeepers, it’s insufficient to balance the budget.
Revenue, meanwhile, is set to fall in both nominal and real terms, compared to both 2025 projections and estimates from a year earlier. The government expects to bring in 40.28 trillion rubles ($482bn at current exchange rates), compared with 41.84 trillion rubles envisaged for 2026 a year ago.
The Finance Ministry expects a 2026 fiscal deficit of 1.6%. This may prove overly optimistic.
Over the past two years, the finance ministry has failed to keep deficits within its original limits. For instance, this year the government initially expected a shortfall of 0.5% of GDP. By June, that was revised upward to 1.7%, and this week’s forecasts show plans for a year-end deficit of 2.6% of GDP, with no guarantee the final figure won’t be worse.