Budget Deficit Rises Sharply as 🛢 Revenues Drop, the Economy Stalls, and Expenditures Continue to Soar

KSE Institute has published the August edition of its Russia Chartbook: “Budget Deficit Rises Sharply as Oil and Gas Revenues Drop, the Economy Stalls, and Expenditures Continue to Soar.” Russia’s deepening fiscal and economic challenges provide an opportunity for Ukraine’s allies to intensify sanctions and financial pressure, further limiting the Kremlin’s ability to sustain its war efforts.

In July 2025, Russia’s oil export earnings rose to $14.3 billion due to somewhat higher global prices, keeping Russian crude at ~$60 per barrel. However, the outlook indicates lower prices through the rest of 2025 and into H1 2026, perpetuating budgetary strains. Oil and gas revenues over May-July were over 30% lower than the same period last year, driven by weak extraction taxes and lower oil prices.

The federal budget deficit reached 4.9 trillion rubles over January-July 2025 — 129% of the full-year target of 3.8 trillion rubles. This is almost 4.5 times larger than the January-July 2024 deficit and nearly twice the largest seven months deficit in recent years (2023). With Brent expected to fall toward $60 per barrel by year-end, Russia is likely to miss its budget target significantly, pressuring the National Welfare Fund (NWF) and domestic debt issuance. 

The NWF’s liquid portion declined to 4.0 trillion rubles ($48 billion) in July after selling 16% of its gold. Without fiscal consolidation, heavy reliance on the NWF could deplete liquid assets within 6–12 months. In January-July 2025, the Ministry of Finance issued 3.0 trillion rubles in OFZ bonds — 114% more than in 2024 and 62% of the annual plan. Low yields suggest strong demand, while the CBR still has the option to provide more liquidity via repo schemes.

Inflation declined to 8.8% year-over-year in July, down from ~10% earlier in 2025, due to the CBR’s prolonged tight monetary policy. As this burdened the economy, the central bank cut rates by 300 bps to 18%. However, high budget deficits and a tight labor market persist, fueling tensions between the CBR’s price stability goals and the Ministry of Finance’s war-financing objectives.

Economic growth slowed to 1.1% year-over-year in Q2 2025 (from 1.4% in Q1), indicating stagnation quarter-over-quarter. Labor and capital constraints pose significant challenges to the growth outlook.