Russia's Fiscal Strain: Balancing War Costs and Economic Stability

Russia is facing fiscal pressure to fund its military spending in Ukraine, with plans to raise taxes further. The 2025 draft budget highlights a high military expenditure, doubling social spending, causing inflation and rising interest rates. Economists predict more financial adjustments amid falling oil prices and sanctions.

Russia is encountering significant economic pressure as it seeks additional funding for its military actions in Ukraine. Already, the draft 2025 budget displays an allocation of approximately one-third of its total expenditure to the military, the equivalent of 6.3% of the GDP, marking the highest level since the Cold War era.

With anticipated tax reforms and new initiatives to raise domestic revenue, Russia is bracing itself for a prolonged fiscal struggle. Despite raising taxes, the anticipated revenues might still fall short, nudging the government to explore various new tax legislation adjustments. Economists forecast a bleak outlook, further exacerbated by declining oil prices.

Amid a constrained budget and a growing military focus, spending cuts are affecting other areas, including social services and education. According to experts, fiscal prioritization leans heavily towards military expanses, leaving other sectors vulnerable and prompting a potential reevaluation of President Vladimir Putin's strategic projects.

(With inputs from agencies.)