Record-Breaking Russian Budget Deficit as Oil Revenues Collapse and Economy Stalls

The record-breaking Russian budget deficit has become a central challenge for the country’s economy in 2025. Consequently, falling oil and gas revenues have collided with soaring government spending, pushing the fiscal gap to record levels. Moreover, analysts warn that this trend highlights the increasing strain on Moscow’s financial system and its ability to maintain stability. Therefore, the latest KSE Institute report stresses that these pressures will continue shaping Russia’s economic outlook in the months ahead.

A Record-Breaking Russian Budget Deficit

The Russian budget deficit reached 4.9 trillion rubles in January through July 2025, or 129% of the full-year target (KSE Institute, August 2025). Furthermore, this shortfall is 4.5 times larger than during the same period in 2024 and exceeds all recent records.

The growing Russian budget deficit highlights worsening fiscal stress, fueled by weak oil revenues and expanding government spending. As a result, Brent crude is projected to fall near 60 dollars per barrel by year-end, which will increase fiscal pressure. Consequently, Moscow will likely miss its 3.8 trillion ruble target.

Analysts warn that financing the gap will drain sovereign reserves and require more debt issuance. However, both approaches carry lasting economic risks. In addition, the imbalance raises concerns about economic stability under sanctions and falling global energy prices.

Oil and Gas Revenues Slump Despite Stable Exports

Russia’s oil export volumes remain steady. However, oil and gas revenues fell 19% year-on-year in the first seven months of 2025 (Bank of Russia). Although July saw a temporary boost from quarterly tax payments, this did not reverse the decline. Revenues were still 27% below July 2024.

Export earnings rose to 14.3 billion dollars in July, thanks to a brief oil price rise. Russian export prices averaged 60 dollars per barrel, the G7 price cap. Nevertheless, markets expect weaker global oil prices in late 2025 and early 2026. That trend would deepen the Russian budget deficit.

Debt Issuance Grows as Welfare Fund Shrinks

The Ministry of Finance issued 3.0 trillion rubles in OFZ bonds between January and July, a 114% increase from 2024 (MinFin). Moreover, yields remain low, which shows continued demand from domestic banks.

At the same time, the liquid portion of the National Welfare Fund fell to 4.0 trillion rubles, or 48 billion dollars, in July. The government also sold about 16% of its gold reserves (KSE Institute, August 2025). As a result, analysts caution that liquid NWF reserves could run out within a year. This would leave Russia more vulnerable to its growing budget deficit.

Inflation Moderates but Growth Falters

Inflation slowed to 8.8% in July, down from double-digit levels earlier in 2025 (Central Bank of Russia). Consequently, policymakers cut the key interest rate by 300 basis points to 18%. This marks the beginning of limited monetary easing.

However, the gains come at a cost. GDP growth fell to 1.1% year-on-year in the second quarter, down from 1.4% in the first. On a quarterly basis, growth stalled completely. In addition, severe limits on labor and capital remain. Forecasts from the IMF, OECD, and World Bank predict weaker growth in 2025 and 2026.

A Fragile Outlook for Russia’s Economy

The August 2025 Chartbook shows an economy under serious strain. Oil revenues are weak, expenditures are high, reserves are shrinking, and growth is slow.

With sanctions tightening and global oil prices falling, Moscow may depend heavily on domestic borrowing and possibly money creation. Both options aim to fund military spending and social programs. Ultimately, analysts conclude that the Russian budget deficit is unsustainable and threatens fiscal stability heading into 2026.

Record-Breaking Russian Budget Deficit: Insights, Experts, and Further Resources

Explore Other Editions of KSE Institute’s Russia Chartbook

• KSE Institute’s Russia Chartbook – August 2025
• KSE Institute’s Russia Chartbook – July 2025
• KSE Institute’s Russia Chartbook – June 2025
• KSE Institute’s Russia Chartbook – May 2025
• KSE Institute’s Russia Chartbook – April 2025
• KSE Institute’s Russia Chartbook – March 2025
• KSE Institute’s Russia Chartbook – February 2025
• KSE Institute’s Russia Chartbook – January 2025

Meet the Researchers

• Benjamin Hilgenstock — KSE Institute. 
• Yuliia Pavytska — KSE Institute. 
• Matvii Talalaievskyi — KSE Institute.

Additional Reading 

Explore other policy papers and reports on Ukraine’s economic transition and development on the KSE Institute’s website. Read more policy briefs on Eastern Europe and emerging economies on the FREE Network’s website.