Crucially, the government's budget law for the entire 2026 fiscal year had set a target deficit of just 3.786 trillion rubles (1.6% of GDP) . In only five months, the deficit has already overshot this annual target by about 59%.

The escalation has been stark and consistent each month:

• January 2026: The deficit hit 1.718 trillion rubles, which was already nearly half of the full-year target in a single month .
• January–February: The cumulative deficit rose to 3.449 trillion rubles, reaching over 90% of the annual target, a record for the first two months of any year .
• Q1 2026: The deficit officially blew past the annual target, reaching 4.6 trillion rubles in just three months .
• January–April: The gap widened to 5.88 trillion rubles (2.5% of GDP), roughly double the level from a year earlier .
• January–May: The cumulative total reached 6.01 trillion rubles (2.6% of GDP) .

The Two Engines of the Deficit: Rising War Costs and Falling Energy Revenues

Two powerful forces are simultaneously widening the budget gap.

War-Related Spending Surge. Federal expenditures in the first four months of 2026 totaled 17.598 trillion rubles, a 15.7% increase year-on-year . The primary driver is military spending, security, and defense-industrial support. The Kremlin has signaled that these expenditures are non-negotiable and will be protected even as fiscal pressures mount on other areas of the budget .

Oil and Gas Revenue Collapse. On the other side of the ledger, Russia's most critical revenue source has cratered. Historically, oil and gas revenues have constituted roughly one-third of federal receipts. However, in early 2026, these revenues collapsed by nearly 40% . This decline is attributed to lower global oil prices, the enforcement of the G7 price cap, and reduced export volumes due to Western sanctions . Overall federal revenues in January-April were just 11.721 trillion rubles, down 4.5% from the same period in 2025 .

The Shrinking Safety Net: National Wealth Fund Under Pressure

The Russian government has been plugging the deficit with its National Wealth Fund (NWF). However, its liquid assets—the portion readily usable for this purpose—are shrinking at an alarming rate.

As of April 2026, the NWF's liquid assets stood at 3.62 trillion rubles, down from 3.89 trillion in March and from over 4.1 trillion at the start of the year . In just January and February, nearly 400 billion rubles from the liquid NWF were used to finance the deficit .

The fund has already burned through roughly two-thirds of its pre-war liquid reserves . Analysts at Gazprombank estimate that at current oil prices, the entire liquid portion of the NWF could be depleted within 1 to 1.3 years . A sharper drop in oil prices to $30-35 per barrel could wipe out the fund by the end of 2026 itself .

Year-End Projections and a Grim Fiscal Outlook

With the deficit already at 6.01 trillion rubles by the end of May, the full-year outcome will be far worse than the official 3.786 trillion ruble target. Most serious analysts predict a final 2026 deficit much larger than planned, potentially landing between 2.5% and 4% of GDP, depending largely on the trajectory of oil prices and whether military spending surges again later in the year .

Russia's long-term fiscal credibility is at stake as it navigates a narrowing set of problematic policy options.

• Tapping the NWF further is the most direct solution, but it is unsustainable. At the current burn rate, the fund cannot cover the deficit track for more than another year.
• Domestic debt issuance is limited by high interest rates and a lack of an international market due to Western sanctions.
• Tax hikes were already enacted in 2025, including a progressive personal income tax and higher corporate profit rates. Further increases risk crushing already-weak private-sector activity.
• Cuts to non-defense spending are being considered, but room is limited. Social obligations like pensions and subsidies are politically sensitive and already underfunded .
• Monetizing the deficit through central bank financing would risk spiraling inflation and a further depreciation of the ruble, making the real cost of the war even higher.

The fundamental problem is structural. The Kremlin deems high levels of war-related spending politically non-negotiable, while the revenue base that supports it is shrinking and the NWF safety net is close to exhaustion. Barring a major and sustained recovery in oil prices or an end to the war, Russia's fiscal trajectory points toward a disorderly adjustment that could involve sharp spending cuts, higher taxes, or a damaging cycle of inflation.

Crucially, the government's budget law for the entire 2026 fiscal year had set a target deficit of just 3.786 trillion rubles (1.6% of GDP) . In only five months, the deficit has already overshot this annual target by about 59%.

The escalation has been stark and consistent each month:

• January 2026: The deficit hit 1.718 trillion rubles, which was already nearly half of the full-year target in a single month .
• January–February: The cumulative deficit rose to 3.449 trillion rubles, reaching over 90% of the annual target, a record for the first two months of any year .
• Q1 2026: The deficit officially blew past the annual target, reaching 4.6 trillion rubles in just three months .
• January–April: The gap widened to 5.88 trillion rubles (2.5% of GDP), roughly double the level from a year earlier .
• January–May: The cumulative total reached 6.01 trillion rubles (2.6% of GDP) .

The Two Engines of the Deficit: Rising War Costs and Falling Energy Revenues

Two powerful forces are simultaneously widening the budget gap.

War-Related Spending Surge. Federal expenditures in the first four months of 2026 totaled 17.598 trillion rubles, a 15.7% increase year-on-year . The primary driver is military spending, security, and defense-industrial support. The Kremlin has signaled that these expenditures are non-negotiable and will be protected even as fiscal pressures mount on other areas of the budget .

Oil and Gas Revenue Collapse. On the other side of the ledger, Russia's most critical revenue source has cratered. Historically, oil and gas revenues have constituted roughly one-third of federal receipts. However, in early 2026, these revenues collapsed by nearly 40% . This decline is attributed to lower global oil prices, the enforcement of the G7 price cap, and reduced export volumes due to Western sanctions . Overall federal revenues in January-April were just 11.721 trillion rubles, down 4.5% from the same period in 2025 .

The Shrinking Safety Net: National Wealth Fund Under Pressure

The Russian government has been plugging the deficit with its National Wealth Fund (NWF). However, its liquid assets—the portion readily usable for this purpose—are shrinking at an alarming rate.

As of April 2026, the NWF's liquid assets stood at 3.62 trillion rubles, down from 3.89 trillion in March and from over 4.1 trillion at the start of the year . In just January and February, nearly 400 billion rubles from the liquid NWF were used to finance the deficit .

The fund has already burned through roughly two-thirds of its pre-war liquid reserves . Analysts at Gazprombank estimate that at current oil prices, the entire liquid portion of the NWF could be depleted within 1 to 1.3 years . A sharper drop in oil prices to $30-35 per barrel could wipe out the fund by the end of 2026 itself .

Year-End Projections and a Grim Fiscal Outlook

With the deficit already at 6.01 trillion rubles by the end of May, the full-year outcome will be far worse than the official 3.786 trillion ruble target. Most serious analysts predict a final 2026 deficit much larger than planned, potentially landing between 2.5% and 4% of GDP, depending largely on the trajectory of oil prices and whether military spending surges again later in the year .

Russia's long-term fiscal credibility is at stake as it navigates a narrowing set of problematic policy options.

• Tapping the NWF further is the most direct solution, but it is unsustainable. At the current burn rate, the fund cannot cover the deficit track for more than another year.
• Domestic debt issuance is limited by high interest rates and a lack of an international market due to Western sanctions.
• Tax hikes were already enacted in 2025, including a progressive personal income tax and higher corporate profit rates. Further increases risk crushing already-weak private-sector activity.
• Cuts to non-defense spending are being considered, but room is limited. Social obligations like pensions and subsidies are politically sensitive and already underfunded .
• Monetizing the deficit through central bank financing would risk spiraling inflation and a further depreciation of the ruble, making the real cost of the war even higher.

The fundamental problem is structural. The Kremlin deems high levels of war-related spending politically non-negotiable, while the revenue base that supports it is shrinking and the NWF safety net is close to exhaustion. Barring a major and sustained recovery in oil prices or an end to the war, Russia's fiscal trajectory points toward a disorderly adjustment that could involve sharp spending cuts, higher taxes, or a damaging cycle of inflation.