Russia's federal budget returned to a deficit of 724 billion rubles, or about $8.8 billion, in July 2026, according to a report published by the Russian Ministry of Finance on Tuesday, August 11.
The shortfall follows a budget surplus recorded in June. Over the first seven months of 2026, Russia's cumulative budget deficit reached $78.6 billion, which is equivalent to 2.8 percent of the country's gross domestic product.
The shift back into deficit was primarily driven by continued growth in state expenditure. Government spending in July 2026 rose by 6 percent year-on-year compared to July 2025, slowing from a 13 percent year-on-year increase recorded in June.
Total spending by the Russian government reached $345.8 billion between January and July. State procurement expenditures expanded at a particularly rapid rate, rising 39 percent over the seven-month period to reach $101.56 billion.
Overall budget revenues for July increased by 28 percent compared to the same month last year. Monthly revenues from the oil and gas sector accounted for $11.29 billion, while direct tax collections from the oil industry reached their highest level in 15 months.
The price of Russia's benchmark Urals crude oil has softened recently as the United States and Iran periodically resume discussions aimed at resolving conflict in the Middle East. Despite the decline, Urals prices remain above the baseline level set by the Russian government in its annual budget planning.
Military Spending Pressures
Military expenditure remains the primary area of uncertainty for the federal budget, according to a report by The Moscow Times. Ekaterina Vlasova, an economist covering Russia and the CIS at Bloomberg Economics, said it was still unclear by how much defense spending would exceed planned levels.
Russia's Ministry of Defense has requested a 40 percent increase in its military budget, representing an additional $50 billion to $60 billion. The Ministry of Finance had intended to cover military requirements through domestic debt issuances, but it was forced to suspend state bond auctions in July following a market collapse.
The Kremlin has allocated more than $64 billion to war expenses since launching its invasion of Ukraine. To maintain military operations and defense manufacturing, authorities have drawn down three-quarters of the liquid reserves in Russia's National Wealth Fund, introduced export and currency duties, raised mineral extraction taxes, and seized private assets.
Taxation rules have also been tightened significantly across the economy. In 2025, the Russian government increased corporate profit taxes and raised personal income tax rates for high earners, followed in 2026 by increases to value-added tax and tax burdens on small businesses.
Refinery Subsidies and Damper Costs
State subsidies to the energy industry have further strained government finances. In June, reports indicated that Russia was paying multi-billion dollar compensations to domestic oil refiners, directly reducing net oil and gas revenues entering the federal budget.
Following Ukrainian strikes on oil refineries, the Russian Ministry of Energy moved in mid-July to prepare for potential diesel shortages by extending its fuel damper mechanism to diesel fuel. Russian economist Nikolai Korzhenevsky said the federal budget was spending between $2.5 billion and $3 billion every month on compensations under the damper system.
To cover persistent financial shortfalls, the Russian government has increasingly relied on non-traditional funding mechanisms. According to intelligence reports from Ukraine's Foreign Intelligence Service, Russian authorities are pressuring state-owned banks to purchase government bonds while receiving liquidity support from the central bank, effectively resorting to money printing.
