War spending is the primary cause. Federal expenditures grew 14.5% year-on-year in January–July, nearly double the 8.8% revenue growth . Military spending now consumes an estimated 46% of total budget appropriations, with the budget operating under a regime of "manual control" . Reuters reported that finance ministry internal estimates from February already saw war spending exceeding the budget by at least 2 trillion rubles ($28 billion) in 2026, with a worst-case scenario of 4 trillion rubles .

Even an oil windfall from the Iran/Strait of Hormuz crisis wasn't enough to close the gap. July's deficit of 724 billion rubles ($8.8 billion) came despite a surge in energy revenue from Middle East tensions, underscoring how structural war spending overwhelms any positive revenue shock .

How the Government Has Hidden or Obscured Financial Data

The Kremlin has taken several steps to reduce transparency around its fiscal position:

• Budget portal opacity. Russia's government budget portal stopped explaining the reasons for upward revisions to spending and deficit projections. When data in July showed the deficit could exceed plans by more than 1 trillion rubles ($12.85 billion), the portal provided no explanation for the revision .
• Parliamentary bypass law. In June 2026, the Duma passed a law enabling the government to increase spending and debt without amending the budget law through the normal legislative process — effectively eliminating public debate and oversight of fiscal decisions .
• German intelligence accusation. Germany's BND intelligence agency publicly accused Russia in March 2026 of concealing the true economic cost of the war, stating that the 2025 budget deficit was significantly larger than officially reported .
• Manual control. Numerous reports describe Russia's budget as being run through opaque "manual control" mechanisms, making real-time fiscal data difficult to independently verify .

The Kremlin's Narrowing Fiscal Options

Tax Increases Are Already in Place but Insufficient

VAT was raised from 20% to 22% effective January 2026 — a hike projected to raise about $13 billion per year, or barely one month of military spending . The corporate profit tax was also increased . VAT receipts jumped by a quarter in the first half of 2026, but the additional revenue is still dwarfed by the pace of expenditure growth . As one analysis put it, "high oil prices and tax hikes aren't enough to offset war spending" .

Domestic Bond Auctions Have Been Suspended

The Finance Ministry halted weekly OFZ auctions indefinitely in late July 2026 after a series of failed sales . Only 8.8 billion rubles had been raised against a 1.5 trillion-ruble quarterly target . The ministry refused to sell new debt at yields above the 14% key rate, but investors are demanding higher premiums amid inflation and fiscal uncertainty . A senior Sberbank executive stated in late July that Russian banks have no spare ruble liquidity to buy government bonds, raising fundamental questions about the viability of domestic borrowing .

Forced Reliance on State Banks

After open-market auctions failed, the Finance Ministry registered two new issues of floating-rate OFZs worth 500 billion rubles each, intended for placement with state-controlled banks rather than through competitive auctions .

Spending Cuts Outside Defense Are on the Table

Finance Minister Anton Siluanov acknowledged in May 2026 that the ministry was reviewing the budget and weighing cuts outside defense and social commitments . However, with defense consuming nearly half of all spending, the scope for non-defense cuts is politically painful and fiscally limited.

The Consolidated Picture Is Even Worse

Russia's consolidated budget deficit (federal plus regional) surged to 8.3 trillion rubles (3.9% of GDP) in 2025, a 2.6-fold increase from 2024 . The total cumulative federal deficit since the full-scale invasion has reached 17.4 trillion rubles ($226 billion) .

In short, Russia's fiscal situation through mid-2026 is defined by a structural mismatch: war spending is growing at roughly twice the rate of revenues, tax hikes on households and businesses are closing only a modest share of the gap, and the domestic bond market — the Kremlin's primary borrowing channel — has effectively seized up, leaving forced placements with state banks, opaque budget maneuvers, and cuts to non-defense spending as the only remaining tools.

War spending is the primary cause. Federal expenditures grew 14.5% year-on-year in January–July, nearly double the 8.8% revenue growth . Military spending now consumes an estimated 46% of total budget appropriations, with the budget operating under a regime of "manual control" . Reuters reported that finance ministry internal estimates from February already saw war spending exceeding the budget by at least 2 trillion rubles ($28 billion) in 2026, with a worst-case scenario of 4 trillion rubles .

Even an oil windfall from the Iran/Strait of Hormuz crisis wasn't enough to close the gap. July's deficit of 724 billion rubles ($8.8 billion) came despite a surge in energy revenue from Middle East tensions, underscoring how structural war spending overwhelms any positive revenue shock .

How the Government Has Hidden or Obscured Financial Data

The Kremlin has taken several steps to reduce transparency around its fiscal position:

• Budget portal opacity. Russia's government budget portal stopped explaining the reasons for upward revisions to spending and deficit projections. When data in July showed the deficit could exceed plans by more than 1 trillion rubles ($12.85 billion), the portal provided no explanation for the revision .
• Parliamentary bypass law. In June 2026, the Duma passed a law enabling the government to increase spending and debt without amending the budget law through the normal legislative process — effectively eliminating public debate and oversight of fiscal decisions .
• German intelligence accusation. Germany's BND intelligence agency publicly accused Russia in March 2026 of concealing the true economic cost of the war, stating that the 2025 budget deficit was significantly larger than officially reported .
• Manual control. Numerous reports describe Russia's budget as being run through opaque "manual control" mechanisms, making real-time fiscal data difficult to independently verify .

The Kremlin's Narrowing Fiscal Options

Tax Increases Are Already in Place but Insufficient

VAT was raised from 20% to 22% effective January 2026 — a hike projected to raise about $13 billion per year, or barely one month of military spending . The corporate profit tax was also increased . VAT receipts jumped by a quarter in the first half of 2026, but the additional revenue is still dwarfed by the pace of expenditure growth . As one analysis put it, "high oil prices and tax hikes aren't enough to offset war spending" .

Domestic Bond Auctions Have Been Suspended

The Finance Ministry halted weekly OFZ auctions indefinitely in late July 2026 after a series of failed sales . Only 8.8 billion rubles had been raised against a 1.5 trillion-ruble quarterly target . The ministry refused to sell new debt at yields above the 14% key rate, but investors are demanding higher premiums amid inflation and fiscal uncertainty . A senior Sberbank executive stated in late July that Russian banks have no spare ruble liquidity to buy government bonds, raising fundamental questions about the viability of domestic borrowing .

Forced Reliance on State Banks

After open-market auctions failed, the Finance Ministry registered two new issues of floating-rate OFZs worth 500 billion rubles each, intended for placement with state-controlled banks rather than through competitive auctions .

Spending Cuts Outside Defense Are on the Table

Finance Minister Anton Siluanov acknowledged in May 2026 that the ministry was reviewing the budget and weighing cuts outside defense and social commitments . However, with defense consuming nearly half of all spending, the scope for non-defense cuts is politically painful and fiscally limited.

The Consolidated Picture Is Even Worse

Russia's consolidated budget deficit (federal plus regional) surged to 8.3 trillion rubles (3.9% of GDP) in 2025, a 2.6-fold increase from 2024 . The total cumulative federal deficit since the full-scale invasion has reached 17.4 trillion rubles ($226 billion) .

In short, Russia's fiscal situation through mid-2026 is defined by a structural mismatch: war spending is growing at roughly twice the rate of revenues, tax hikes on households and businesses are closing only a modest share of the gap, and the domestic bond market — the Kremlin's primary borrowing channel — has effectively seized up, leaving forced placements with state banks, opaque budget maneuvers, and cuts to non-defense spending as the only remaining tools.