Russia’s consolidated budget deficit reached almost 4% of GDP in 2025

As Russian regions shoulder more war costs and social security funds are depleted, the consolidated budget balance has deteriorated far more than expected.

Update: On February 24, Russia’s Finance Ministry published the official data for the consolidated deficit in 2025. It was 8291.5 billion rubles, or 3.9% of GDP.

The consolidated budget balance is usually not a very interesting statistic. It combines Russia’s federal budget with regional budgets and extra-budgetary funds (Russia’s social security system). In most years, the consolidated budget balance is very close to the federal balance, typically within 0.5% of GDP. However, 2025 was an unusual year for the Russian budgetary system. As the economy cools and war costs increase, important shifts are happening in Russian finances.

Although the official data on Russia’s consolidated budget balance has not yet been published, all of its components are already available. When added up, they show that Russia’s consolidated budget deficit will be close to 8.3 trillion rubles, or 3.9% of GDP. The federal budget deficit was 2.6% of GDP in 2025; meanwhile, deficits outside the federal budget added another 1.3% of GDP.

Regional budget deficits: a surprise?

The high regional deficit was unexpected—at least officially. In September 2025, when the Russian Finance Ministry published its budget guidelines, it predicted a regional budget deficit of 312.3 billion rubles—only one-fifth of what it turned out to be. While the prediction of regional budget revenues was accurate (actual: 25.87 trillion rubles vs. estimated: 25.76 trillion rubles), regional expenditures were much higher than expected (actual: 27.4 trillion rubles vs. estimated: 26.07 trillion rubles). This resulted in a deficit of 1.54 trillion rubles, or 0.7% of GDP.

While regional tax revenues (particularly profit taxes) are falling, increased spending is the main cause of the higher deficit. It’s no surprise that the regions are struggling to balance their budgets. In 2025, they spent much more on the war than in previous years. One factor is sign-on bonuses. The data is incomplete, but the regional total for 2025 is at least 0.5 trillion rubles (not including municipal and federal bonuses). Regions are also paying compensation for injuries and payouts to families of deceased soldiers, which could add another 0.5 trillion rubles. Numerous other budget items are also related to the war, such as reconstruction in border regions and compensation for damage from Ukrainian drone attacks.

Social security system as a piggy bank

The deficit of the extra-budgetary funds in 2025 was also unprecedented, at least in nominal terms. It reached 1.16 trillion rubles, or 0.5% of GDP. Russia’s social security funds depend on subsidies from the federal budget. Each year, the Ministry of Finance decides how much these transfers will be for the following year. If the transfers are high or if the economy is booming, the funds can build up a buffer.

The buffer consists of deposits that these funds hold at the Treasury. It can be used by the Finance Ministry to transfer rubles into the next fiscal year. For example, when Russia’s federal budget had record energy revenues in 2022, it “prepaid” 1% of GDP in additional subsidies to the social security system. This led to a high surplus in extrabudgetary funds and allowed the social security system to increase its buffer.

When the Finance Ministry decides to transfer less money in a given year, the funds must use up their deposits. This is exactly what happened in 2025. Extrabudgetary funds received only 2.1% of GDP in transfers from the federal budget in 2025 after receiving 3.3% of GDP in 2024. This operation has the effect of reducing the federal budget deficit, while increasing the deficit in the extrabudgetary funds. This can help to make the federal balance look better in a bad year, but of course it cannot be repeated, unless the extra-budgetary funds manage to rebuild their buffer.

The bigger picture

In the past, looking at the federal budget was enough to understand the state of Russian finances. However, in 2025, the situation was worse than the federal deficit suggests. If the Kremlin wants the regions to contribute as much to the war effort as they did last year, it will have to increase budget transfers.

The regions and social security systems are particularly sensitive to Russia’s current economic downturn. One reason for this is inflation. Social payments are adjusted for inflation with a lag time of around a year. When the economy is booming, profits and wages increase, which helps regional budgets and boosts social security contributions, while social payouts initially remain stable. When the economy cools, payouts catch up to past inflation while revenues shrink, leading to fiscal stress.

As Russia heads into the fifth year of its full-scale war against Ukraine, Putin must demonstrate that the “special military operation” is not a dead end. If economic and fiscal problems become more apparent while progress on the front lines stalls, the war will appear increasingly futile. This may not result in overt opposition in Russia. However, it will lead to questions, asked quietly, and it will shape expectations in Russia and abroad. Over the last couple of years, Russian elites may have seen a light at the end of the tunnel, for themselves. Support for Ukraine has weakened, there has been progress at the front lines, and Trump has weakened the Western alliance. However, as economic difficulties in Russia increase and Trump—despite his admiration for Putin and disregard for international law—is unable to simply hand Russia a victory over Ukraine, this light is fading.

PS: In November, I wrote about Russia’s unrealistic budget plan for 2025 - an analysis that was based on historical patterns of budget spending. The Russian budget plan turned out to be correct, and the historical spending patterns are - well - history: The Finance Ministry distributed spending on state contracts (i.e., military industry contracts) more evenly throughout the year, with a significant prepayment occurring in January.

PPS: Not so fast! As it turns out, the social funds DID play a role in keeping the December spending so unusually low. The historical pattern lives on. Here is the quarterly budget of the Pension and Social Fund. You can see that the 4th quarter of 2025 saw unusually low subsidies to the fund. In Q4 of 2023, the transfer was 1.8 trillion rubles, in Q4 of 2024 it was 2.5 trillion rubles, and in Q4 of 2025 it was 0.8 trillion rubles, so ~0.5% of GDP lower than in previous Q4s (thanks to @leoskyview.bsky.social for suggesting this).

Source of data: Russian Finance Ministry.