Russia Has a Budget Problem. Borrowing Its Way Out Won't Be So Simple.
The rising cost of debt is helping push Moscow toward tax hikes and spending cuts that analysts say could weaken growth.
Russia’s government debt stands at about 19% of its gross domestic product, a figure President Vladimir Putin uses to assure Russians despite the widening budget deficit. The federal budget deficit reached 5.8 trillion rubles ($68.4 billion) in 2026, surpassing the 3.8 trillion rubles ($44.8 billion) planned for the entire year.
President Putin claims the deficit is not critical, given Russia’s low government debt levels, but this advantage is diminishing due to high interest rates, sanctions, and a limited pool of domestic buyers. High yields on 10-year Russian government bonds, around 14% to 16% in recent years, exceed the average yield of 4.3% on bonds from major economies.
Sanctions have restricted foreign investors, leaving Russia dependent on domestic buyers, mainly large banks. The Central Bank’s high interest rate to control inflation raises the returns investors expect, compelling the government to issue high-return and floating-rate bonds. These floating-rate bonds protect buyers against rising rates but burden the government with higher debt servicing costs, expected to approach 4 trillion rubles ($47.2 billion) this year, roughly a tenth of federal spending.
This expense is more than the combined federal education and healthcare budgets. The government’s limited ability to borrow more is constrained by this burden, as even doubling current debt could push servicing costs to a quarter of the budget. Finance Minister Anton Siluanov warns that increased borrowing could crowd out other spending priorities.
In 2027, Russia plans higher taxes and around 2 trillion rubles ($23.6 billion) in spending cuts, including raising taxes on property sales and deposit interest, introducing a 22% value-added tax on online purchases, and adding a customs fee on parcels. While this could reduce the deficit, analysts warn that these measures might harm business activity and investment due to a heavier tax burden.
With government spending at roughly 40% of GDP, the tax burden is increasingly constraining growth. Analysts fear that higher taxes could dampen investment and increase demand for cash, potentially leading to inflation and higher prices for consumers.
Written by urgent.news from The Moscow Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
