Russia is increasingly abandoning fiscal discipline to sustain its war effort in Ukraine, which is now in its fifth year, a shift that former Russian central bank advisor Alexandra Prokopenko warns could signal long-term structural decline for the Kremlin’s economy. While Vladimir Putin maintains a firm grip on power, the depletion of the sovereign wealth fund and the suspension of traditional budgetary oversight indicate that the state is struggling to balance military expenditures with domestic economic stability.
How Russia’s Fiscal Strategy Is Changing
The Kremlin has effectively removed the guardrails that previously defined its economic policy. According to an analysis by Alexandra Prokopenko, now a fellow at the Carnegie Russia Eurasia Center, the Russian parliament recently granted the finance ministry the authority to increase spending and exceed debt ceilings without formal legislative approval or a formal budget.
This pivot away from fiscal restraint comes as the country faces mounting financial pressure. Data indicates that Russia’s budget deficit reached 2.6% of GDP—roughly $83 billion—through May, a figure that already doubles the total deficit projected for the full 2025 fiscal year. As these costs rise, the sovereign wealth fund, which has been tapped to cover budget shortfalls, has been drawn down to a fraction of its pre-war levels.
Economic Strain and Domestic Impact
The financial cost of the conflict is no longer confined to state accounts; it is increasingly impacting the daily lives of Russian citizens. Inflation remains high, and interest rates have reached levels that pressure both businesses and consumers.
The economic strain is compounded by localized crises, including fuel shortages that have led to long queues at gas stations and fights breaking out between people struggling to buy rationed supplies of gasoline. Prokopenko characterizes this as a "juggling act" that has reached its limit, noting that the regime is essentially invoicing the population to fund the war effort. This transition, she argues, is creating a scenario where the state suppresses economic rules to maintain a war machine that is becoming increasingly difficult to finance.
Military Casualties and Internal Dissent
The war’s impact extends beyond the balance sheet to the composition of the military and internal security. Reports from military bloggers have highlighted the high attrition rates among new recruits, with some estimates suggesting survival times on the front lines are measured in minutes.
The human cost has occasionally triggered rare public displays of frustration. In one instance, a veteran of the Ukraine war identified as Aleksandr Lunin released a viral video alleging that soldiers are subject to torture by their own commanders. While Lunin later retracted a threat of potential mutiny, the incident forced a public response from the Kremlin, with Putin’s spokesman acknowledging that the government was aware of the appeal.
Future Risks for the Kremlin
While most analysts agree that Putin’s leadership remains secure in the immediate term, the long-term stability of the regime is a subject of debate among historians and political observers.
Peter Frankopan, a professor of global history at the University of Oxford, noted in Foreign Policy that a revolution in Russia is not likely. Instead, he suggests that mounting economic pain and disillusionment with the war may convince certain factions in the regime "that it is time for a new start," adding that "today’s cracks can become tomorrow’s fissures." Frankopan warned that this environment could make the Russian leadership more dangerous, as the regime may escalate military or political actions to avoid total collapse.
Key Takeaways
- Fiscal Policy: The Kremlin has bypassed traditional budgetary oversight, allowing for unchecked borrowing and spending to fund the Ukraine war.
- Deficit Trends: Russia’s budget deficit reached 2.6% of GDP through May, already exceeding projections for the entire 2025 year.
- Economic Pressure: High inflation and fuel shortages are increasing public discontent as the state relies more heavily on domestic resources to cover military costs.
- Internal Stability: While the government maintains control, dissent within military and security circles has become visible, signaling potential future fractures within the regime.
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