Russia’s Wartime Economy Shows Growing Strain Amid Military Spending

Russia’s economy is coping with a widening budget deficit and rising debt as it finances a 4½-year invasion of Ukraine. Government-raised value-added tax, new fees and tighter taxes on small firms have failed to close the gap, leaving a deficit of 2.8 % of annual economic output by the end of July—almost twice the original target. With reserve-fund assets depleted to 1.6 % of GDP, the state increasingly relies on borrowing from domestic banks at interest rates up to 17 % on Russian bonds.

Russia's wartime economy faces growing pressure from debt, military spending

Higher oil prices triggered by the war in Iran have temporarily bolstered state finances. Monthly oil export earnings rose from below $10 billion before the Iran conflict to $15.8 billion in June and $13.8 billion in July, providing a fiscal cushion that keeps the war effort afloat. The Kremlin has framed this stability ahead of a tightly managed parliamentary election that began on a Friday and ends on a Sunday, emphasizing low unemployment (2.2 %) and increased spending in poorer regions to limit public discontent.

Russia’s Wartime Economy Under Growing Pressure as Debt and Military Costs Rise

• Growth outlook: Government projects 0.6 % growth this year after a peak of over 4 % annual expansion in 2023-24.

Russia's wartime economy faces growing pressure from debt, military spending

• Consumer sentiment: The Levada Center’s index fell to 94 in the summer, down from 116 in spring-summer 2025; readings below 100 signal negative sentiment.

Russia's wartime economy faces long-term erosion from debt and military spending

• Labor market: Defense factories such as Uralvagonzavod have expanded staff from ?20,000 to >38,000; Kupol’s output more than doubled in 2025.

Russia's wartime economy faces long-term erosion from debt and military spending

• Oil revenue: $15.8 billion (June) and $13.8 billion (July).

Russia's wartime economy faces growing pressure from debt, military spending

• Debt pressure: Private lending to defense firms is not reflected in official deficit figures, adding hidden liabilities.

Russia's wartime economy faces growing pressure from debt, military spending

The Kremlin’s narrative stresses that low unemployment and targeted regional spending keep public grievances in check.

Russia's wartime economy faces long-term erosion from debt and military spending

• “Overall I'd like housing to become more affordable, I'd like pensioners to be able to live decently instead of merely surviving,” — Dmitry Kirillin

Russia's wartime economy faces long-term erosion from debt and military spending

• “The economy is under strain — it's stagnant to the effect that it's stable but not growing,” — Chris Weafer, CEO of the Macro-Advisory Ltd

Russia's wartime economy faces long-term erosion from debt and military spending

Sources agree that the economy has avoided collapse, but they differ on the immediacy of any future crisis. While some analysts label the situation “unsustainable,” they stop short of specifying a timeline, leaving the exact point at which structural weaknesses could trigger a downturn uncertain. No concrete forecasts or scheduled policy changes are provided beyond the current fiscal figures.

Russia's wartime economy faces growing pressure from debt, military spending