Russian budget is collapsing; Putin offers excuses; Italy and Belgium face twists
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Executive summary
Russia’s federal budget deficit widened to roughly RUB 4.2–4.9 trillion in 2025 (about 1.9–2.6% of GDP) as oil and gas revenues plunged and spending rose; Moscow is resorting to domestic borrowing, yuan bond plans and monetary measures to cover the gap [1] [2] [3]. President Putin publicly insists growth and “balanced” recovery remain goals while acknowledging sectoral output falls and “difficulties,” creating a mixed message between official reassurance and independent analysts warning of fiscal strain [4] [5] [6].
1. Russia’s budget is under clear stress — but how severe?
Multiple outlets show the same pattern: a ballooning fiscal gap in 2025 driven by weaker oil & gas receipts and high wartime spending. Preliminary ministry and market aggregations put the January–November/October shortfall in the RUB 4.2–4.9 trillion range (about 1.9–2.6% of GDP), with some forecasts projecting a full-year deficit far above the original target [1] [3] [2]. Independent analysts describe this as a record widening of the fiscal gap, not an instantaneous collapse—but a serious deterioration in one year [3].
2. Revenue mix and the shock to oil income
Oil and gas — once a reliably large share of federal receipts — fell sharply in 2025, with some reports noting year-to-date declines of more than 18–22% and knock-on shortfalls of more than $15 billion against earlier expectations [7] [8]. The drop forced the Finance Ministry to revise targets and seek alternative funding sources, undercutting the government’s previous revenue assumptions [8] [2].
3. Financing maneuvers: domestic bonds, yuan issue and central-bank workarounds
Faced with weak demand for OFZ sovereign debt and a looming funding gap, reporting indicates Moscow is increasing borrowing plans and exploring unconventional financing: a planned first-ever yuan-denominated bond on the Moscow Exchange and repeat use of repo-to-OFZ schemes involving state banks that resemble monetary financing [9] [2]. Think-tank and market coverage warns these tools raise inflationary risks and imply heavier reliance on state-controlled credit [9] [10].
4. Monetary policy and inflation trade-offs
The Central Bank has kept interest rates high at times to curb inflation but has also run large repo operations and rolled over bank debt, which critics say can amount to de facto lending to the state if prolonged [9] [11]. Inflation remained elevated through 2025 (reports cite figures around 6–8%), complicating the Kremlin’s policy triangle of growth, price stability and funding the war effort [4] [12].
5. Putin’s public framing vs analysts’ warnings
Putin has publicly urged officials to avoid recession and has touted achievements in bringing inflation down toward single digits, while also acknowledging “difficulties” in the economy — a mix meant to reassure domestic and international audiences but which analysts read as political messaging to keep elites aligned [4] [5] [13]. Think-tanks and Western analysts argue the Kremlin’s strategic choices — sustained military spending, sanctions exposure, and a constrained investment climate — limit conventional policy fixes [14] [15].
6. Two competing narratives: imminent collapse or managed strain?
Some commentators and pro-Kremlin or contrarian pieces insist Russia is weathering the storm — citing continued GDP growth in 2023–24 and social resilience [16] [17]. Conversely, a broad set of independent reports and international institutions document a structural fiscal squeeze: falling hydrocarbon shares of revenue, depleted reserves, rising public borrowing and growing debt-service burdens [6] [1] [3]. Both narratives draw on real data; they disagree on trajectory and policy room.
7. Where the risks are concentrated and what to watch next
Key vulnerabilities are falling oil receipts, rising defence and transfer spending, heavier reliance on state bank financing and novel currency-denominated debt issuance; these raise inflation, crowd out private credit and erode reserves over time [2] [9] [6]. Watch December bond operations, central bank repos, official deficit revisions and whether yuan bond plans proceed — each will reveal whether Moscow is stabilizing financing or trading short‑term fixes for longer-term instability [2] [9].
Limitations: available sources do not mention internal Kremlin contingency scenarios beyond financing measures, nor do they provide a single, authoritative estimate of 2025 year-end deficit — figures vary by agency and date (not found in current reporting).