Russia's budget is strained by the war with Ukraine, according to the ISW
Russian dictator Vladimir Putin claims there are supposedly “positive results” for the Russian economy, but actual figures show a growing budget deficit, an economic slowdown, and increasing pressure on businesses.
This is stated in a report by the Institute for the Study of War.
During his speech, Putin claimed that the Russian economy is supposedly showing “modest but positive growth.” Specifically, he cited the following figures: wholesale trade +8%, retail trade +6.2%, industrial production +2.3%, GDP +1.8%, and unemployment, according to him, remains at 2.2%.
At the same time, analysts point out that these statements do not account for key negative trends. For instance, in January–February 2026, Russia’s GDP declined on an annualized basis, and the Russian Ministry of Economic Development has already downgraded its growth forecast for 2026—from 1.3% to 0.4%.
The sharp deterioration in the state of public finances is highlighted separately. According to Ukrainian intelligence, Russia’s budget deficit for the first four months of 2026 reached $78.4 billion, which is nearly double the figure from a year earlier and exceeds 150% of the planned annual deficit. During this period, Russia spent approximately $235 billion, a significant portion of which went toward the war, social benefits, and economic support.
To offset these expenses, the Russian government was forced to raise the VAT rate and increase domestic borrowing. At the same time, servicing the national debt alone cost $14.8 billion over four months.
The situation in the business environment is also deteriorating. According to Forbes, 209,000 small and medium-sized enterprises ceased operations in Russia in the first quarter of 2026, which is nearly 9% more than last year. Among the reasons cited are the rising tax burden and general economic instability.
An additional source of pressure has been the rising costs for Russian regions to cover payments and bonuses for military personnel, which have more than doubled. As a result, the federal government is forced to regularly provide aid to the regions and write off their debts.
ISW analysts conclude that Russia’s economy is increasingly dependent on military spending and state funding, rather than on the development of the private sector. At the same time, low unemployment, which the Kremlin presents as a “success,” may in fact indicate an acute labor shortage caused by the war.
According to data from Ukraine’s Foreign Intelligence Service, the economic indicators of both aggressor countries have turned negative: the Russian economy contracted by 0.3%, and the Belarusian economy by 0.4%. The main cause of stagnation in Russia was the Central Bank’s tight monetary policy, which significantly raised the discount rate in an effort to combat inflation.
Meanwhile, production and sales of agricultural machinery in Russia have plummeted.
After three years of unexpected economic growth, Russia is facing a sudden slowdown—war costs, inflation, and falling oil prices have begun to weigh on an economy that until recently seemed resilient to sanctions.
Consumer lending in Russia has fallen to a six-year low.
