Moscow — Russia’s public deficit could balloon to almost triple the official target by the end of 2026 as a fall in Indian purchases of oil and growing discounts eat into revenue, according to a source close to the government.
In addition, government spending may be higher than expected, the source said.
The source cited calculations by economists from a government-linked think-tank, which are not planned for publication. They are the latest sign of growing strains on a Russian economy facing sanctions, high interest rates and labour shortages.
The calculations show a possible fall in energy revenues by 18% in 2026 compared to the government’s plan, pushing the deficit to between 3.5% and 4.4% of GDP, as opposed to a planned 1.6% of GDP. The estimates also assume a rise in spending by between 4.1% and 8.4%.
Total budget revenues are expected to fall by 6% from the plan to 37.9-trillion roubles ($494.78bn).
“The budget situation is sharply deteriorating. Revenues will be lower and expenditures higher,” said the source, who spoke on condition of anonymity because of the sensitivity of the issue.
Unless stated otherwise, Russian government and central bank calculations generally assume the status quo — that war in Ukraine, now nearing its four-year anniversary, will continue into 2026 and that Western sanctions will remain.
The most recent government data, published on Wednesday, shows that budget energy revenue halved in January to the lowest level since July 2020, at 393.3-billion roubles.
The Russian economy, which fared relatively well during the first three years of the war, slowed sharply in 2025 as the central bank’s fight against inflation pushed interest rates to the highest level since the early 2000s.
‘Not a catastrophe’
Western sanctions targeting the Russian energy sector and its customers have resulted in Russian oil trading at discounts of more than 20% to international benchmarks.
The rouble’s 45% rally against the dollar last year also hit revenue as oil taxes are calculated in dollars but paid in roubles.
The calculations were made before US President Donald Trump said he persuaded India to stop buying Russian oil, but the source said they were based on an assumed 30% drop in Indian purchases, an assumption that remains for now.
The revenue decline comes as Russia and Ukraine are engaged in US-mediated direct talks in the United Arab Emirates this week, with all sides saying progress is being made towards a settlement.
Russia has 4.1-trillion roubles in fiscal reserves that the government can draw on to cover the deficit, but analysts estimate that at the current pace of revenue decline those reserves would be largely depleted within a year.
The source said that while a rising deficit and dwindling reserves would not trigger an economic collapse, they would require a response from financial authorities.
“This is not a catastrophe. It is something that can actually be financed, but not at such interest rates,” the source said. The finance ministry was likely to propose spending cuts, which would be the wrong move during an economic slowdown, the source added.
Some assumptions in the current budget, such as an announced slight cut in military spending, are “unrealistic,” the source said.
Eating into reserves
The finance ministry, which makes its own calculations, declined to comment. The think-tank estimates broadly match those of commercial banks and other research institutions.
Alfa Investment analysts project that if the current discounted oil prices and the rouble exchange rate persist, the budget could miss about 3-trillion roubles in revenue this year, implying the use of 73% of liquid fiscal reserves.
Analysts at VTB, Russia’s second-largest bank, estimate the state will withdraw 2.5-trillion roubles from reserves in 2026, leaving just 1.6-trillion roubles as its safety cushion.
Russia operates a budget rule under which revenue collected above a certain oil price — known as the “cut-off” price — are stored in the fiscal reserve fund.
Russian oil has consistently traded below that price, currently set at $59 a barrel. The government plans to lower the cut-off price by $1 a year to make transfers to the fund more reliable when prices rise.
Russian policymakers view a balanced budget as Russia’s main shield against Western sanctions. Deputy Prime Minister Alexander Novak said on February 3 that Western sanctions experts specifically targeted budget revenues.
“Budgetary balance, which exists, is one of the key foundations for maintaining the stability of our finances and our economy. These are the indicators that we must not destabilise,” Novak said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.