The war is draining Russia's budget, and debt is growing faster than revenue – Bloomberg
Due to the full-scale war against Ukraine and limited access to external financing as a result of sanctions, Russia is increasingly forced to cover its expenses through costly domestic borrowing. This is leading to accelerated growth in public debt, which is outpacing the growth of budget revenues.
According to Bloomberg Economics estimates, over the next decade, Russia will pay at least 15% of GDP in total interest on its debt—an amount roughly equal to the country’s entire public debt as of today.
According to sources familiar with budget discussions, an increase in domestic bond issuance is expected this year, as the war economy requires additional funding. Defense spending this year could exceed the budgeted figures by 4–5 trillion rubles ($55–69 billion), or nearly 40%.
Under the budget law, the government had planned to raise slightly more than 4 trillion rubles on the domestic market, and the national debt ceiling was set at 37.4 trillion rubles. However, in the first five months of the year, the budget deficit reached 6 trillion rubles, or 2.6% of GDP, exceeding the annual target by approximately 60%. This limit for 2026 has already been reached.
Although the Russian Ministry of Finance is attempting to reduce the deficit by drawing on accumulated reserves and cutting spending in other areas, the government will be forced to raise an additional 2–3 trillion rubles through new borrowing this year.
Debt service costs have doubled since the full-scale invasion in February 2022—after the central bank raised interest rates to a record high to cool down the economy, which had overheated due to rising military spending. In 2021, interest payments accounted for just 4.5% of federal expenditures and ranked eighth among budget items.
This year, Russia plans to spend nearly 4 trillion rubles on debt service—that’s almost 9% of the total federal budget, making this the fifth-largest budget item after defense, national security, social policy, and the economy.
According to Dmitry Polevoy, Chief Investment Officer at Astra Asset Management, the growing debt burden limits the Ministry of Finance’s ability to optimize other spending categories, Bloomberg reports.
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