Russian military spending soars, upending the Kremlin’s budget plans
Point of View, 04.09.2026 Research Areas-
Janis Kluge
At the Eastern Economic Forum in Vladivostok, Putin tried to dispel concerns about the state of Russia’s public finances. But the numbers tell a more troubling story for the Kremlin, adding to doubts about how long Russia can sustain the war, says Janis Kluge.
When Vladimir Putin takes the stage at a major public event, little is left to chance. Speeches, questions and answers are usually choreographed down to the smallest detail. Putin’s appearance at the Eastern Economic Forum in Vladivostok on September 3 was no exception. The plenary session began with a largely boilerplate speech by Putin on the socio-economic development of Russia’s Far East. But when Putin left the podium and returned to his seat on stage, the moderator immediately shifted the discussion to a different topic. He asked Putin about the state of the federal budget, pointing to the rapidly widening hole in Russian government finances.
The choice of question was certainly no coincidence. The Kremlin apparently wanted to send a reassuring message about the budget. “There is nothing critical here,” Putin told the audience of economic and financial elites gathered in the plenary hall in Vladivostok.
But Russia’s economic elites have plenty of reasons to be worried: The fiscal situation is deteriorating quickly as the costs of the war continue to soar. Newly released data on Russian spending in the first half of 2026 shows that military spending rose by 30 per cent compared with the same period last year, reaching 10.7 trillion rubles, or 4.7 per cent of projected GDP for 2026. Russia had originally planned to cut military spending this year. So far, the opposite is happening: If military spending continues at this pace, it will exceed 9 per cent of GDP by December, marking a new record in Russia’s post-Soviet history.
Fiscal pressures are increasing
The unplanned growth of military spending is undoing the fiscal consolidation on which Russia’s budget for the current year was built. By the end of September, the Russian government is expected to present its budget plans for 2027. “Maybe we should start saving a little more?” the moderator suggested to Vladimir Putin at the Eastern Economic Forum, almost as if to pave the way for the president to justify painful new budget cuts. Putin responded that it’s not simply about cuts, but about spending rationally and with clear priorities, effectively laying the rhetorical groundwork for reductions that are increasingly likely to fall on the civilian parts of the budget.
Budget cuts, however, will not free up enough funds to cover the increase in war costs. As revenues are not keeping pace, the higher military spending will translate into a higher budget deficit. By the end of July, budget data showed a deficit of 2.8 per cent of GDP – almost twice the original annual target. In recent years, Russia has used its National Wealth Fund to finance budget shortfalls, but liquid assets in the fund have dwindled to just 1.6 per cent of GDP. This means that the Russian Finance Ministry has to rely on new debt as its primary source of financing. However, domestic borrowing has become extremely expensive for Moscow. Against the backdrop of high public expenditure and concerns about higher inflation, interest rates on long-term Russian government bonds climbed to almost 17 per cent in July.
Doubts are not welcome in public
The Kremlin has gone to great lengths to shield the Russian public from the impacts of the war, preserving a veneer of normality as the war rages in Ukraine. But in 2026, the strains of the war have become increasingly apparent. Ukrainian long-range strikes on refineries have caused a petrol shortage that the Kremlin has struggled to contain. Attacks on large warehouses have further exposed Russia’s vulnerability to Ukraine’s expanding long-range strike capabilities. Russia’s budget worries add to the mounting pressures that Putin is facing at home.
On the sidelines of the Eastern Economic Forum in Vladivostok, another announcement was made that received little media attention: Russia’s state development bank VEB.RF presented a new chief economist. The position had previously been held by Andrei Klepach, a former deputy economy minister and one of Russia’s most prominent economists. Klepach had been dismissed after publicly warning about the mounting costs of the war and arguing that Russia was falling behind economically and technologically in a prolonged war of attrition.
Klepach’s removal sent a clear signal that such doubts are not welcome in public debate. Those who remain unconvinced by Putin’s reassuring words are apparently better off keeping quiet. But silencing the doubters will not make the mounting costs of the war disappear.
This analysis is based on data from the newly launched SWP Russian Budget Monitor. Click here for more information.
Dr Janis Kluge is Deputy Head of SWP's Eastern Europe and Eurasia Research Division.
