Russia is entering a new budget cycle with record military spending, rising public debt, declining oil and gas revenues, and additional tax pressure. Formally, Moscow retains the ability to finance the war and meet its social obligations, but the structure of the budget shows that the cost of maintaining the current model is becoming increasingly high.

 

The Russian government has submitted to the State Duma a draft federal budget for 2027 and the planned period of 2028–2029. The document shows that Moscow expects to maintain high levels of government spending on defence, security, and social programmes despite the deterioration of several key budget indicators.

In 2027, federal revenues are projected at 43.3 trillion rubles ($518 billion), while expenditures are expected to reach 48.8 trillion rubles ($584.5 billion). The resulting deficit is estimated at approximately 5.5 trillion rubles ($65.9 billion), or 2.2% of GDP. In 2028, revenues are expected to rise to 45.8 trillion rubles ($548.6 billion), while expenditures will reach 50.9 trillion rubles ($609.7 billion). In 2029, the corresponding figures are projected at 48.6 trillion rubles ($582 billion) and 53.9 trillion rubles ($645.6 billion).

At first glance, a deficit of around 2–2.2% of GDP does not appear critical for an economy of Russia's size. This is also the position expressed by Finance Minister Anton Siluanov, who said on October 5 that the proposed budget was "resilient to any scenarios" and that public debt remained under control.

However, the key issue is not only the size of the deficit, but what is creating pressure on Russian public finances. The main signal is military spending. According to the budget documents, Russia's defence expenditures are expected to reach approximately 17.1 trillion rubles ($204.8 billion) in 2027, about 27% higher than the level initially planned for 2026. Over the three-year period, total defence spending could reach approximately 50 trillion rubles ($598.9 billion). This would represent the highest level of military spending during the entire period since Russia launched its full-scale invasion of Ukraine.

Moscow is therefore not demonstrating a transition toward a peacetime budget policy. On the contrary, its financial planning assumes that the high burden on the defence-industrial complex and security sector will continue throughout the entire new three-year period.

At the same time, the oil and gas component of the budget is becoming a less reliable source of financing. According to the published parameters, oil and gas revenues in 2027 are expected to amount to approximately 7 trillion rubles ($83.85 billion), while non-oil and gas revenues are projected at around 36.3 trillion rubles ($434.9 billion). By 2029, the share of oil and gas revenues in the budget structure is expected to continue declining.

This has a dual significance. On the one hand, reducing the budget's dependence on oil and gas can be viewed as a structural adaptation of the Russian economy to sanctions and changes in external markets. On the other hand, the replacement of oil and gas revenues is taking place primarily through taxation, domestic borrowing, and the redistribution of resources within the economy, rather than through a rapid increase in productivity.

This is why tax policy is becoming one of the most important elements of the new budget. The Russian authorities have already prepared a package of tax changes designed to increase federal revenues. Additional revenues are needed by Moscow to offset higher expenditures and the widening budget deficit.

Another indicator of pressure is public debt. According to budget calculations, Russia's public debt could rise to approximately 21.7% of GDP in 2027, exceeding the 20% of GDP benchmark that Russian authorities have previously regarded as a relatively safe level. By 2029, the ratio could reach approximately 24% of GDP.

This does not yet indicate a debt crisis. Russia's public debt remains significantly below the levels recorded by many developed economies. But the trajectory is more important than the absolute figure: after several years of large-scale war financing, the state is gradually increasing its reliance on domestic borrowing.

At the same time, the government is building the budget around relatively moderate economic growth. The baseline forecast assumes GDP growth of approximately 1.4% in 2027, accelerating to 2.4% by 2029. This creates a potential contradiction. Russia plans to increase military spending, expand government expenditure, and maintain social commitments while not expecting a comparable acceleration in economic growth.

In other words, the state will be redistributing an increasingly large share of economic resources without generating a proportional increase in economic potential. The social component of the budget also remains substantial. The government has pledged to maintain family benefits, pension indexation, and healthcare funding. In 2027, healthcare expenditures, including both the federal budget and the compulsory medical insurance system, will exceed 7 trillion rubles ($83.85 billion).

This is also important from a political perspective. The Russian authorities cannot fully shift the cost of the war onto the population by cutting social spending, as such a policy would create additional domestic risks. Moscow is therefore attempting to maintain social programmes while continuing to finance defence.

As a result, a distinctive three-way budgetary structure is emerging: defence and security, social commitments, and servicing the growing deficit must all be financed simultaneously. The higher the spending on the first element, the greater the pressure on the other two.

At the same time, the Russian economy still retains a certain degree of resilience. Relatively low public debt as a share of GDP, access to domestic borrowing, extensive state control over the economy, and the ability to redistribute resources allow Moscow to continue operating under this model. However, its sustainability cannot be assessed solely by the absence of an immediate financial crisis. The more important question is the price at which this resilience is being maintained.

Higher military spending means a further expansion of the role of the state and the defence-industrial complex in the economy. A higher tax burden reduces the room for manoeuvre available to private businesses. Rising domestic debt increases future budget expenditures on debt servicing. Declining oil and gas revenues reduce the traditional financial buffer. At the same time, limited GDP growth indicates that the expansion of government spending is increasingly less supported by a rapidly growing economic base.

 

Thus, the 2027–2029 budget is less an indication of an immediate financial crisis in Russia than a transition toward a more expensive and less flexible model of a wartime economy.

Moscow still has the resources to continue its current policy. However, its room for manoeuvre is gradually narrowing. If oil prices fall below the assumptions built into the budget, military spending will have to be financed through an even larger deficit, higher taxes, additional borrowing, or cuts to other spending categories. If sanctions pressure intensifies at the same time as economic growth slows, the budgetary burden will become significantly more sensitive.

The main conclusion of the new budget is therefore the following: Russia remains capable of financing the war, but the cost of maintaining this capability is rising. The 2027–2029 budget shows not so much Moscow's financial weakness as the gradual exhaustion of the cheapest ways to sustain military spending. The state increasingly has to borrow, collect more taxes, and redistribute resources in favour of defence. 

CCBS Research Desk

#ANALYSIS

#RUSSIA

05.10.2026 01:52