Russia Was Forced to Cut Spending After Running Out of Cash

Russia imposed sharp spending restrictions after an April liquidity crisis exposed the mounting costs of its war in Ukraine, according to people familiar with the matter.

A tight austerity regime was introduced after Finance Minister Anton Siluanov warned Prime Minister Mikhail Mishustin that there wouldn’t be enough cash that month to make all the necessary payments on time, as the Treasury’s federal budget balances fell to a negative 5.5 trillion rubles ($65.3 billion), people close to the government said, asking not to be identified because the information isn’t public.

Though liquidity strains have been an issue since early 2026, the pressure notably peaked in April, even as Russia’s oil revenue rose to a six-month high as energy prices spiked amid the turmoil over the Iran war.

A negative budget balance in the single Treasury federal budget account is an unusual occurrence, according to former Deputy Finance Minister Oleg Vyugin. For many years, the government has consistently maintained positive cash balances so that budget spending is financed smoothly, he said, when asked about the standard processes in the ministry.

“The Treasury has traditionally invested temporarily idle funds in various financial instruments as part of its liquidity management,” he said. “That has been standard practice for decades.”

While the situation presents difficulties for the government, it’s not critical, as the budget can continue to finance spending on the war for several more years, according to the people familiar.

Bloomberg previously reported that policymakers in the Finance Ministry and the central bank had warned the Kremlin that war spending was on an unaffordable path, in a sign of internal disagreement as defense officials pressed for additional funding.

The financial warnings come as Ukraine pummels Russia with long-range drone strikes deep inside its territory, including attacks on Moscow and energy facilities.

President Vladimir Putin has shrugged off the impact of Ukrainian attacks on Russia’s economy, and the Kremlin is now preparing to escalate its attacks on Ukraine.

Amid mounting pressures on Russia’s budget, the government has scaled back other spending commitments in an effort to preserve liquidity and contain the federal deficit.

Austerity measures in place since April have resulted in 35% cuts in funding for budgetary areas outside spending on the war, salaries for public sector workers and the military, social programs, support for regional authorities and government debt servicing.

The government also instructed federal agencies to prepare for a 15% reduction in staffing and to postpone all non-essential spending, the people said.

The government and Finance Ministry press services didn’t respond to requests for comment.

The liquidity squeeze emerged as Russia’s fiscal deficit widens despite a windfall in energy revenue driven by the crisis with Iran over the Strait of Hormuz. The budget deficit has surged to 6.5 trillion rubles ($77.2 billion), or 2.8% of Russia’s gross domestic product, well above the 1.6% target set for 2026 in the budget law.

The Finance Ministry has attributed the increase in part to the front-loading of some expenditures early in the year. Still, Russian lawmakers rushed through amendments in June allowing the government to increase spending without the approvals previously required for revising the budget.

According to the ministry’s latest internal projections, the deficit is unlikely to narrow by year-end and could widen further. The shortfall is projected at 3.2% to 3.8% of GDP by 2027, according to the people.

The upper limit of this prediction would bring Russia’s 2026 deficit to the level it reached in 2020 during the Covid-19 pandemic.

Russia is also piling up expensive domestic debt, as the Kremlin increasingly relies on borrowing to help fund the war that’s now well into its fifth year with no end in sight.

The austerity measures have so far helped Russia to avert a deficit spike predicted in April, when internal assessments projected the budget gap would reach 9 trillion rubles ($107 billion), or 3.8% of GDP, by the end of June.