Russia’s budget deficit could nearly triple this year, significantly overshooting official targets, as declining energy revenues and higher spending weigh heavily on public finances, according to internal government-linked estimates cited in a Reuters exclusive on February 4.

“The budget situation is sharply deteriorating. Revenues will be lower and expenditures higher,” said a source close to the government, citing unpublished calculations by a state-affiliated think tank. The estimates project a deficit of 3.5% to 4.4% of GDP in 2026, far above the official forecast of 1.6%.

The sharp downturn is primarily attributed to a projected 18% fall in energy revenues, driven by steeper oil discounts and a stronger ruble. Total budget revenues are forecast to fall 6% below plan, to RUB37.9 trillion ($494.78bn), while spending could rise by 4.1% to 8.4%.

Russia’s economy, which withstood the early impact of sanctions and war-related costs, is now showing signs of fatigue. High interest rates, a tight labour market, and the prolonged cost of the war in Ukraine — now approaching its fourth year — have all added pressure. “Unless stated otherwise, Russian government and central bank calculations assume the status quo — that war in Ukraine will continue into 2026 and that Western sanctions will remain in place,” Reuters reported.

Government data released on January 31 showed that budget energy revenues halved in January to RUB393.3bn ($5.13bn), the lowest level since July 2020. Analysts say this puts Russia on track to exhaust much of its fiscal cushion unless policies adjust.

“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,” Reuters noted. A 45% rally in the ruble against the dollar in 2025 has also cut into revenues, as oil taxes are paid in rubles but calculated in dollars.

Despite pressure, Moscow still holds RUB4.1 trillion in fiscal reserves, but analysts estimate these could be largely depleted within a year. “This is not a catastrophe. It is something that can actually be financed, but not at such interest rates,” the source said, warning that proposed spending cuts would be “the wrong move during an economic slowdown”.

Assumptions baked into the current budget — such as a slight reduction in military expenditure — were described by the source as “unrealistic”.

Estimates from Alfa Investment suggest that Russia could miss RUB3 trillion in revenues this year if current oil discounts and exchange rates persist, requiring the use of 73% of liquid reserves. VTB analysts expect RUB2.5 trillion will be drawn from reserves in 2026, leaving just RUB1.6 trillion.

Deputy Prime Minister Alexander Novak acknowledged on February 3 that sanctions have specifically targeted the budget. “Budgetary balance... is one of the key foundations for maintaining the stability of our finances and our economy,” he said. “These are the indicators that we must not destabilise.”