Ukraine…Russia Day 1466…The Russian War Economy IS in Deep Trouble

This analyst says that Russia’s deficit is even bigger than reported and the economy is sinking fast.

In an act of budgetary kabuki theater, Russia quietly raided its Social Security reserves — its citizens’ financial safety net — to make the federal budget deficit appear less than 8 trillion rubles. Russia has three budgets that makeup one, big, beautiful consolidated budget: the federal budget, the regional budget, and the so-called extra-budgetary budget, where Social Security funds is accounted for. Unlike 2024, all three budgets ended 2025 deep in the red.

Indeed, to hide the shortfall in the 2025 federal budget, the government pulled out all the stops: it raised VAT 10% to a 22% rate; delayed large payments to 2026; shifted war expenses like sign-on bonuses and grid repairs to the regional budgets; robbed the Social Security fund of its reserves; and printed money through the Bank of Russia’s REPO mechanism.

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Russia can only rob its Social Security reserves once; there’s nothing left to steal. Meanwhile, the population is feeling the heat. Judges, teachers, and physicians are going without pay. Hospitals and schools around the country are closing. Bus and tram routes are being cancelled, especially in occupied territories. Prices, particularly for food, are exploding (even according to Rosstat).

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For their part, Russian businesses that don’t close will beg for a bailout from the federal government, only likely to be rebuffed. Indeed, Samolet, Russia’s largest real estate developer, just asked the federal government for a 50 billion ruble bailout to avoid default and mass layoffs. State-owned Russian Railways, 4 trillion rubles in debt (1.88% of GDP!), recently was forced to sell off the second largest rail operator in the country, a subsidiary. Russia’s 7th largest bank by assets, Rosneft’s Moscow Credit Bank, reported 28% of its loan portfolio is junk — an increase of 700% over last year — and is on the brink of failure.