Russia's war spending exceeds its budget, forcing it to increase its national debt - Bloomberg

Russia, the aggressor nation, has spent more on its full-scale war against Ukraine than its entire national budget, forcing moscow to increase its national debt. Bloomberg reported this, citing its own sources.

Russian dictator vladimir putin often emphasizes that having the lowest level of public debt among the G7 countries is one of the key advantages of the russian economy. However, the war against Ukraine is beginning to change this situation.

Since international sanctions have virtually cut off access to foreign sources of financing, russia is increasingly relying on expensive domestic borrowing to fund the war. According to Bloomberg’s calculations, over the next decade, russia will pay at least 15% of its gross domestic product (GDP) in interest on its debt. This is roughly equivalent to the country’s current total public debt.

Unnamed sources at the agency reported that domestic bond issuance is expected to increase this year, as the war economy requires additional funding. According to them, defense spending this year could exceed the figures initially included in the budget by nearly 40% compared to planned expenditures.

According to the budget law, the russian government planned to raise slightly more than RUB 4 trillion on the domestic market to cover government expenditures, and the upper limit on public debt was set at RUB 37.4 trillion.

However, in the first five months of the year, the budget deficit rose to RUB 6 trillion (2.6% of GDP), exceeding the target for the entire year of 2026 by approximately 60%. The public debt ceiling for 2026 has already been reached.

The russian Ministry of Finance aims to reduce the deficit by drawing on accumulated reserves and cutting spending in other areas, according to sources cited by Bloomberg. By the end of the year, it intends to raise an additional RUB 2–3 trillion through borrowing.

In addition, debt servicing costs have doubled since the start of the full-scale invasion of Ukraine, as the Central Bank of the russian federation raised interest rates to record levels to cool the country’s overheated economy after the government sharply increased spending on military needs and business support. In 2021, interest payments accounted for about 4.5% of federal spending and ranked only eighth among budget expenditure items.

However, this year russia plans to spend nearly RUB 4 trillion on debt service, which accounts for almost 9% of the total federal budget. This makes it the fifth-largest item in the state budget after defense, national security, social policy, and the economy.

"At current interest rates, domestic debt is quite costly. This increased burden, in turn, limits the room for maneuver in other spending categories that the Ministry of Finance is seeking to optimize,” Dmitry Poliovyi, investment director at Astra Asset Management, told Bloomberg.

As the Ukrainian News agency earlier reported, Janis Kluge, a research fellow at the Institute for International and Security Affairs (Germany), wrote, citing data from the russian Ministry of Finance, that the aggressor country had for the first time begun spending two-thirds of the taxes flowing into the budget on the war.

As a reminder, on June 1, Bloomberg reported, citing its own sources, that putin had been warned that the russian federation’s budget was no longer capable of covering the costs of the war.