Preparing for a Fourth Year of War: Military Spending in Russia’s Budget for 2025

I. Introduction

The high-intensity war that started with the Russian Federation’s full-scale invasion of Ukraine in February 2022 has now entered its fourth year. Russian President Vladimir Putin and his government have been devoting an ever-increasing volume of resources to the war—which it still officially terms a ‘special military operation’—while attempting to maintain as normal a life as possible for Russia’s citizens. To this end, ambitious national projects, many on social issues, the pursuit of ‘technological sovereignty’ and building infrastructure have been allocated budget spending on a large scale at the same time as the funding of the armed forces and the security services has been growing rapidly. This has been possible because, notwithstanding tough international sanctions, the Russian economy has been growing at a rapid pace, which has enabled the government to maintain an almost balanced budget. The challenge in preparing the three-year federal budget for 2025–27 was to continue this balancing act at a time when the economy was showing signs of overheating—that is, unable to produce enough to keep pace with demand—with the Central Bank of Russia attempting to cool it by increasing the key rate of interest to ever higher levels, creating problems for the business sector.

This paper analyses military spending in all parts of Russia’s federal budget for 2025–27. It first describes (in section II) the process of preparing the 2025 budget and its general features. It then (in section III) analyses military and other war-related spending in the budget, devoting particular attention to the growth of military spending outside the ‘National defence’ budget chapter, which is rendering that chapter an increasingly unreliable proxy for total Russian military spending. It then turns (in section IV) to other government spending that is related to the war but is not, strictly speaking, military expenditure. The paper closes by assessing (in section V) Russia’s economic performance in 2024 and prospects for 2025 and beyond before drawing conclusions (in section VI). Throughout, the focus is on the budget for 2025—the second and third years of Russia’s three-year budgets are only loosely indicative of future plans.

II. The budget process

An evolving forecast

As usual, a central element of drafting the new federal budget was the preparation of a three-year forecast of economic development. The Ministry of Economic Development (Minekon) issued its first version in April 2024. This estimated gross domestic product (GDP) growth in 2024 to be 2.4 per cent, 2.3 per cent in both 2025 and 2026, and 2.4 per cent in 2027. Inflation, year-on-year, was expected to be 5.1 per cent in December 2024, falling to
4.0 per cent each year in 2025–27. Unemployment was forecast to be stable at 3 per cent throughout the period.¹ Given the circumstances, with deepening sanctions, this was a fairly optimistic forecast foreseeing modest but stable growth, declining inflation, increasing exports and imports with a stable current account balance, and increasing disposable incomes. Indeed, the next three to four months tended to confirm that the forecast was on track, apart from a rising rate of inflation and an increasingly tight labour market as unemployment fell to under 3 per cent.

In early May President Putin convened the first meeting on the future budget. He said that he wanted not just the usual three-year budget, but a budget plan to 2030 (which had not appeared by the end of March 2025). The documents had to be ‘responsible, balanced and realistic to the maximum extent’.² The government decided that the 2025 draft budget had to be submitted to the State Duma for approval by 1 October, and work on its preparation was undertaken behind the scenes throughout the summer and early autumn. In early September Minekon issued an amended three-year forecast, which would provide the basic economic parameters for the new budget (see table 1). A week later the Central Bank increased its key interest rate to 19 per cent, having already increased it to 18 per cent in July from the rate of 16 per cent that had held since the beginning of the year.³ This rendered the Minekon forecast somewhat problematic from the outset.

The September forecast was more optimistic about Russia’s growth prospects over the three next years but acknowledged a higher rate of inflation in 2024, although this was expected to moderate rapidly from 2025. The forecast rate of unemployment was reduced to 2.6 per cent from 3 per cent, even though the actual rate had already fallen to 2.4 per cent by June 2024 according to the Russian Federal State Statistics Service (Rosstat).⁴ There were also more optimistic expectations with respect to the export price of oil, to the benefit of budget revenues, and a larger current account surplus in 2024 and 2025, although imports were now expected to be slightly lower. In short, no drama was expected and conditions were considered appropriate for a stable budget on the lines established in recent years.

The draft budget

At its meeting on 24 September the government approved the draft budget and its transfer to the State Duma (the lower house of the Russian Parliament) according to the established procedure.⁵ It was duly handed over to the Duma on 30 September and soon appeared on its legislation site.⁶ It then became apparent that the level of transparency had diminished: when the 2024–26 draft budget had appeared on the Duma website a year earlier, it was accompanied by several hundred other documents; this time, only 227 were listed.⁷ Furthermore, a key document setting out total spending—that is, open spending plus classified—for each budget chapter and subchapter, which has always appeared as an appendix to the explanatory notes accompanying the draft, was not made public; only chapter totals were available. The usual assessments of the draft by Duma committees that appeared before the first reading also failed to include subchapter totals, only presenting open data.

The draft budget had its first reading in the Duma on 24 October. As usual at this stage, the debate focused on the main parameters of the budget and the economic forecast on which it was based. There was an unusually large majority in favour of the draft: 314 of the 393 deputies present voted in favour and only 1 against (Oksana Dmitrieva, a member of the budget committee but not of any faction), with 78 abstaining. On this occasion the Communist Party did not vote against the budget, as it often does; its leader, Gennady Zyuganov, even spoke in favour of its overall balance of priorities.⁸

On 26 September Elvira Nabiullina, director of the Central Bank, had said that she could not rule out a further increase in the basic rate in October.⁹ Then, a day after the budget’s first reading, the Central Bank did indeed raise its key interest rate from 19 per cent to 21 per cent, explained by the need to bring the rate of inflation under control.¹⁰ At a stroke, this measure was bound to have an impact on the budget itself and the economic forecast on which it was based; yet this was not taken into account in future consideration of the budget before its final approval.

The draft budget forecast revenue in 2025 to be more than 4 trillion roubles above the forecast 2024 level and total expenditure to be 2 trillion roubles higher, giving a deficit on only 0.5 per cent of GDP (see table 2). This was to be covered mainly by state borrowing. Earlier, the Ministry of Finance had said that the gross volume of borrowing would be 4.8 trillion roubles in 2025, 5.1 trillion roubles in 2026 and 5.3 trillion roubles in 2027, with state debt consequently increasing from 15 per cent of GDP in 2023 to 18 per cent in 2027.¹¹ Thus, Russia continues to maintain extremely low indebtedness by international standards.

A number of features of the draft budget are immediately evident (see
 table 3), not least the fact that spending on the chapter ‘National defence’ was set to increase by 3.1 trillion roubles to almost 13.5 trillion roubles, a 30 per cent increase. At the same time, spending on national security and public order was to increase by 5.3 per cent, indicating that the ‘special military operation’ is still seen in predominantly military terms, rather than security.

Another notable feature is the decline in spending on ‘Social policy’, but most Russian commentators have failed to explore the underlying changes. For the 2025 budget it was decided that the separate Pensions and Social Insurance Fund was in a sufficiently strong financial position that the usual annual transfer to it of federal budget money could be reduced.¹² According to the report by the Accounts Chamber on the fund’s draft budget, intra-budget transfers to it from the federal budget were set to total 5.4 trillion roubles in 2024, 4.0 trillion roubles in 2025, 4.7 trillion roubles in 2026 and 4.7 trillion roubles in 2027.¹³ This saving of 1.4 trillion roubles in 2025 helps to partly explain why it proved possible to increase military spending again in the 2025 draft budget.

Two other significant changes should be noticed: first, a large increase in ‘Housing and utilities’, boosted by significant subsidies to some categories of house buyers, including military personnel; and second, a large increase in ‘Debt servicing’, reflecting the steady growth of interest payments on the national debt.

The draft budget, with amendments amounting to reallocations of
8129 billion roubles, was approved at its second reading on 14 November with 330 deputies voting in favour, 80 abstaining and Dmitrieva again voting against.¹⁴ In all, 1065 amendments had been submitted, of which 888 were accepted, the majority of them submitted by the government. According to the Ministry of Finance, many related to defence and security (including the ‘special military operation’) and also social policy.¹⁵ The funding of national projects was increased by 500 billion roubles and the ‘Social policy’ chapter by almost 400 billion roubles. As usual, only amendments relating to open spending were made public; those concerning classified spending were secret and only known to deputies with the required level of security clearance. This made it impossible to establish the final volumes of funding by budget chapter as these figures were also excluded from the final budget law.

The budget law

The Duma held its third and final reading on 21 November, with 335 deputies voting in favour, 77 abstaining and only 1 (again Dmitrieva) voting against.¹⁶ The Federation Council (the upper house) approved the budget in its usual formal manner on 27 November, followed by it being signed into law by President Putin and then published a few days later.¹⁷

Fuller details became known only on 27 December when, without any publicity, the Ministry of Finance published its usual Budget for Citizens. This appeared in an unusually abbreviated form, only 18 pages compared to over 60 for the 2024 budget—another sign of the sharply reduced transparency in relation to the federal budget. The Budget for Citizens nonetheless made it possible to establish final total spending by budget chapter (see table 4).

Comparing the draft and final figures (in tables 3 and 4) shows that spending on ‘National defence’ was reduced by more than 400 billion roubles at the second reading while, as noted above, ‘Social policy’ was increased by almost 390 billion roubles. Other chapters were changed to only a modest extent, but total classified spending was reduced by 961 billion roubles to
29.2 per cent of total expenditure (down from 31.5 per cent in the draft).

The change in classified spending can be explained by looking in detail at open and classified spending in the draft budget and the budget law (see table 5). There was a substantial reduction in classified military spending and an increase of 220 billion roubles in classified social spending. The probable meaning of these changes is explored below. The figures on classified spending will be useful in assessing budget implementation as 2025 progresses as the official budget.gov.ru website gives only open spending on a quarterly basis by budget chapter and total spending for the budget as a whole.

III. Military spending in the federal budget for 2025–27

Total military expenditure

From the budget law and the Budget for Citizens, it is possible to assemble all the relevant data to establish the total volume of military spending in 2025–27 (see table 6). Preliminary data on the implementation of the 2024 budget is also available, but only for total revenue and expenditure, not disaggregated by chapters. Details of open spending by budget chapter should be made public later in 2025, prior to the appearance of the draft law on the implementation of the 2024 budget that usually appears early in the summer. No details are available for the classified components of allocations under the subchapters of ‘National defence’ and they are unlikely to be known until after the conclusion of the war. It must also be stressed that the budgets for 2026 and 2027 are from the Ministry of Finance and, especially in relation to military spending, do not indicate any expectations or intentions of the government with respect to the war after 2025.

It can be seen that planned total military expenditure in 2025 is about
15.5 trillion roubles. Using the forecast average exchange rate for 2025 (see table 1), this would be equivalent to US$160 billion, although the volatility of the exchange rate makes this estimate highly speculative. In nominal terms, the rouble figure is about 12 per cent more than in 2024, based on the budget listing (i.e. the upper limit on spending) of the beginning of October 2024. Overall, there are few significant discontinuities in the various lines of spending but one feature merits attention: the large military-related social support. In 2024, this amounted to 915 billion roubles, falling to 563 billion roubles in 2025, but including a large new element of classified spending of 242 billion roubles (as discussed below).

The budget for 2025–27 was drafted at a time when the rate of inflation was steadily increasing. With the modest GDP deflator of the economic forecast on which the budget was based (see table 1), total military spending is set to increase by 3.4 per cent in real terms in 2025 (see table 7). This compares with a possible 53 per cent increase in 2024, although this figure may be misleading as final total military spending in 2022 and 2023 is not known with any precision. Since the full-scale invasion of 2022, actual military spending in each year has been much larger than originally planned, and this may also be the case in 2025 but will depend on the performance of the economy.

In February 2025 Rosstat published a revised GDP series with new totals, rates of growth and deflators for recent years.¹⁸ This led to a revision of the growth and GDP share of military spending in 2021, the year before Russian invaded Ukraine: in real terms, military spending fell by 5.2 per cent compared with 2020. This provides additional evidence that Russia was not well prepared for war.

Military spending in other chapters of the federal budget

Officially, when military spending is discussed in Russia it is invariably in terms of the budget chapter ‘National defence’. To some extent this is also the case in the West. However, there is military spending in most other budget chapters and this appears in the annual budget of the Ministry of Defence. Almost all of it is in open terms, not classified, covering spending on the environment, education, health, culture, physical education and sport, and the mass media (see table 6). In addition, there is usually a small amount of military spending in the first chapter, ‘General state issues’, and in the final chapter, ‘Inter-budget transfers’ (i.e. transfers to regional budgets).

Military spending on social policy

Since the full-scale invasion, one of the most rapidly increasing components of military spending has been MOD spending on ‘Social policy’. Analysis shows that this is a revealing case of spending on guns being presented as spending on butter. The budget chapter ‘Social policy’ always includes the funding of military pensions as one of its larger components, plus subchapters on social support measures. By far the largest of these subchapters is 10.03 ‘Social support of the population’. In the past this has included various forms of compensation and extra payments to certain categories of military personnel or to civilians who have experienced negative consequences of military-related activities. Thus, it funds compensation for victims of nuclear radiation incurred during nuclear testing, leaks from nuclear weapon facilities and the Chornobyl nuclear accident. The total sums for these payments are modest, about 2 billion roubles a year. There are also payments to recipients of honours such as Hero of the Soviet Union and Hero of the Russian Federation and other distinguished war veterans, but the sums are not large. A summary of these social payments from 2021 (for pre-war comparison) to the 2025 budget law is shown in table 8, which is inevitably complex. There is also military spending in the form of ‘Social support’ in regional budgets, but the available data does not permit an estimation of the total volume.

Unfortunately, for the draft budget for 2025–27 there must have been a change of budget classification because some other payments—a few clearly relating to the war—have disappeared from the open version of budget subchapter 10.03. There is a line of funding (10.03 3100) of the state programme no. 31 for defence (SP 31) devoted to social support, including monetary payments to military personnel. In the 2024 budget listing of
1 October, the total had reached 873 billion roubles compared with 532 billion in the budget law for the year, and 766 billion roubles was disbursed in the first nine months of the year (see table 8). In the budget law for 2025 there are hardly any details of spending under this line of funding.

Taking the whole budget chapter ‘Social policy’, classified spending of 23 billion roubles in the draft budget for 2025 rose to almost 242 billion roubles in the budget law, while open spending of the MOD on this budget subchapter increased to 563 billion (as shown in table 6)—these must have been significantly amended at the second reading. There was no classified part of MOD social support in the 2024 budget and for 2026 and 2027 this new classified component falls to just over 18 billion roubles. However, the total of these two sums in 2025, 835 billion roubles, is less than the 915 billion roubles in the 2024 budget listing.

This decrease suggests that part of the spending has been transferred to another budget chapter, almost certainly ‘National defence’, accounting for some of the increase between 2024 and 2025. It has, without doubt, been classified. This probably covers all compensation payments to the families of victims of the war and possibly some of the extra payments to those newly recruited on contracts. One line of spending that has disappeared in 2024 from 10.03 ‘Social support’ is that for housing subsidies for service people, which had grown from 2.2 billion roubles in 2021 to reach 350 billion roubles in the 2024 budget law. This is probably one of the inducements to serve that have been adopted since the full-scale invasion and as such may also have been switched to the ‘National defence’ chapter.

Analysing military spending on social policy

The issue of funding for ‘Social support’ relating to the war is complex. It is difficult to research because of the wide range of payments and the fact that federal government funding is supplemented by funding from regional budgets, but it is a topic meriting a separate paper. As the war has dragged on, the level of transparency has diminished, making it impossible to establish the true volume of funding from either the federal budget or regional ones. The main national rates of payment are publicized, however, and the MOD website has a section devoted to the payments that can be received for service in the war, as do numerous regional websites and the national site giving explanations of government measures.¹⁹

As of late 2024 the national signing-up payment for service under contract reached 400 000 roubles ($3920), having been doubled by President Putin at the end of July from 195 000 roubles. This was also the minimum additional payment at the regional level, with many regions paying a larger sum. At the beginning of 2025 the largest payment was in Samara oblast, which was increased to 7 million roubles (but only for those signing up in January), much higher than the previous top-paying regions, Belgorod and Nizhegorodsk, which offered 3 million.²⁰

The minimum monthly monetary salary was 210 000 roubles, with more for higher ranks. Since Putin signed an order in April 2022 on financial compensation to victims of military service, it has been updated three times. Most recently, in November 2024 the one-off compensation payment to families reached 5 million roubles ($49 000), with up to 3 million roubles for the families of those wounded.²¹ However, the government soon amended the new rules: previously all wounded soldiers received 3 million roubles; now only those with wounds deemed ‘severe’ would receive this sum; those with ‘minor’ wounds would get 1 million roubles. Alexander Golts, a military journalist, saw this as a sign that budgetary pressures on the war were beginning to be felt.²² Perhaps another sign was a government decision that, from the beginning of 2025, large signing-up payments would not be paid to prisoners concluding contracts with the MOD.²³ Nevertheless, as many who have served in the war and their families have found, military service can bring significant economic and social benefits, a grim reality that Vladislav Inozemtsev has termed ‘deathonomics’ (смертономика, smertonomika).²⁴

A powerful actor is Defenders of the Fatherland (Защитники Отечества, Zashchitniki Otechestva), a state foundation that was established by President Putin on 3 April 2023 to provide support for participants in the ‘special military operation’.²⁵ Initial funding was provided in June 2023 by a large grant of 1314 billion roubles from the government reserve fund, of which 1085 billion roubles was for the foundation’s staff.²⁶ It soon established a nationwide network of 89 regional offices. Since then the government has allocated a number of grants to help fund the foundation’s activities, in particular more than 18 billion roubles in February 2024.²⁷ From the outset the foundation has been chaired by Anna Tsiveleva, wife of a former governor of Kemerovo oblast.²⁸

In March 2025 President Putin approved the creation of a new body to coordinate the activity of all agencies engaged in support for veterans of combat service, including participants in the ‘special military operation’.²⁹ This is to be a commission of the Russian State Council (a presidential advisory body) and is to be chaired by the governor of Astrakhan oblast, Igor Babushkin, who has a background of service in both the MOD and the Federal Security Service (Federal’naya Sluzhba Bezopasnosti, FSB). It is charged with securing coordination of all social-support measures for participants in the war and with ensuring the appropriate provision of medical and psychological assistance to veterans.

To the extent that some forms of social support have been transferred from the ‘Social policy’ chapter of the budget to ‘National defence’, the increased spending on the military in the 2025 budget is rather misleading as this is not spending on weapons procurement, nuclear forces or arms industry development. It is military spending, of course, but in the form of financial inducements to urge more people to sign up for military service and to fight, and perhaps die, in the war with Ukraine. In real terms, the funding of core military spending planned for 2025 may, in fact, be less than money actually spent on those purposes in 2024.

IV. Other war-related spending

As the present author has argued in earlier papers on military spending since the full-scale invasion of February 2022, large components of Russia’s military spending are not directly linked to the war—in particular allocations to Russia’s nuclear forces and much of the spending on the Russian Navy.³⁰ Similarly, allocations to the armed forces are only part of total spending on the war. Most federal budget chapters include some war-related spending, but in most cases it cannot be easily identified.

One particular form of non-military spending that is, nonetheless, directly linked to the war is that devoted to the regions of Ukraine wholly or partially seized by Russia and to some border regions of Russian suffering from the impact of the war. The former are covered by two state programmes, the latter by one-off federal budget allocations, the volume of which can be traced through government decrees and orders.

Spending on ‘new territories’

Most of the federal budget funding of the four ‘new regions’ of Ukraine that Russia annexed in September 2022—Donetsk, Kherson, Luhansk and Zaporizhzhia oblasts—is allocated under a new dedicated state programme, no. 60 on the ‘Restoration and socio-economic development’ of the four regions. This is in addition to the established state programme no. 47 devoted to Crimea and the city of Sevastopol, invaded in 2014. The volume of funding of these two programmes is substantial (see table 9), but not as large in 2025–27 as in the 2024 budget listing as of 1 October and the increase over the three years is modest.

In addition to spending under the state programmes, there have been a number of one-off government decisions to allocate funding to the so-called new regions and Crimea. The approximate totals can be established from analysis of government decisions: in 2024, 27 billion roubles was allocated for the four regions in addition to the state programme, mainly from the government’s reserve fund.³¹ There were also various forms of support for small businesses, free economic zones and agriculture, without the size of funding being specified.

The special case of Kursk oblast

On 6 August 2024 Ukraine made a military incursion into Russian territory, rapidly occupying more than 1250 square kilometres of Kursk oblast. Bitter fighting has taken place since then involving many Russian troops and some from North Korea, but at the end of the year Ukraine was still in possession of about half of the territory originally taken.³²

Federal government funding to support the population of Kursk was first provided on 8 August, two days after the start of the incursion, when a government order was adopted allocating just over 1.5 billion roubles from its reserve fund to assist residents of the oblast. This was followed by additional allocations on 12, 19, 20 and 26 August, mainly taking the form of one-off payments of a modest scale: a mere 15 000 roubles per person at first, later increased to 75 000 or 100 000 roubles depending on the extent of the loss of property. The allocation process was in the hands of the Ministry for Emergencies.³³ It later emerged that this involved a complicated administrative process that meant many were unable to get support.

On 5 December Putin dismissed the governor of Kursk, Aleskei Smirnov, who seemed to be incapable of meeting the basic needs of the long-suffering population of the territory under Russian control, and replaced him with Aleksandr Khinshtein, a Duma deputy with experience of service in the National Guard. One of the motivations for the change appears to have been financial: the Kursk incursion has been a drain on the country’s finances, with the federal government taking efforts to limit the funding allocated. Khinshtein has therefore not made himself popular in those parts of Kursk oblast freed from Ukrainian occupation as he has refused to secure further funding to compensate residents for the loss of their personal possessions or meet other grievances.³⁴

As Russia failed to regain the lost territory, the government found itself having to make additional allocations to support the residents and maintain healthcare and other services in the region: more than 10 billion roubles in September, followed by 3.2 billion roubles in October and 4.7 billion roubles in November.³⁵ By early December the total sum amounted to at least 35 billion roubles, almost all from the government’s reserve fund. In early 2025 there were additional allocations: 1.3 billion roubles in mid-February and 43.9 billion on 25 February, both from the government’s reserve fund.³⁶

While ad hoc federal funding has been allocated to Kursk oblast to compensate to some extent for the suffering caused to its residents by the Ukrainian incursions, the sums disbursed so far are far below those that will be required to repair all the damage when the war is over. According to Smirnov when he was governor, the total cost of restoring damaged buildings, roads, bridges and other structures will amount to at least 700 billion roubles—almost as much as the gross regional product of the oblast (796.5 billion roubles in 2023) and equivalent to half the planned total federal budget allocation to inter-budget transfers in 2025 (see tables 4–5).³⁷ It may well take several years before adequate finance is made available to complete the restoration.

One of the ways in which the authorities have limited funding has been by ruling that the Kursk problem is not part of the ‘special military operation’. This means that not only do those fighting in Kursk get much lower pay, but those service people killed or injured in combat to regain the territory are eligible for only the modest sums available for ‘normal’ combat, not the large-scale compensation available to those serving in the ‘special military operation’. Not surprisingly, this has not found favour with the troops assigned to Kursk and their families. The authorities have known of this situation from the outset, but have taken no action to remedy the situation.³⁸

Allocations for Belgorod oblast

While not suffering a large direct incursion by Ukrainian forces, another region neighbouring Ukraine, Belgorod oblast, has also incurred significant costs from the war. It is often hit by uncrewed aerial vehicles (UAVs) and missiles and the population in border regions has suffered from deaths, injuries, and loss of property and employment.

The regional government has taken some support measures backed by federal budget funding. In April 2024, 2 billion roubles was allocated from the reserve fund for additional support to citizens and businesses of Belgorod, with a statement that more than 6 billion roubles would be allocated during the year. However, by the end of November less than 1.5 billion roubles had been disbursed and in December the only measure was an order delaying tax and insurance payments by businesses in the oblast. In February 2025 an additional 3 billion roubles financial assistance was approved.³⁹

Furthermore, general budget funding to Belgorod oblast appears to have been reduced. According to an informed report in November, non-repayable federal budget financing (безвозмезных поступлений, bezvozmeznykh postuplenii) of all regions bordering Ukraine, apart from Kursk (see above), had been reduced in the first 10 months of 2024 compared with the same period of 2023; in the case of Belgorod oblast, this was a 37 per cent reduction from 41.3 billion roubles to 26.1 billion roubles.⁴⁰ These developments hint that budgetary pressures are now being felt by the Russian government.

V. Economic performance in 2024 and prospects for 2025 and after

At first sight Russia’s economy performed well in 2024, with growth of 4.1 per cent (see table 1) compared to an official forecast of 2.4 per cent. However, after a strong start in the early months of the year, the rate of growth declined: GDP increased (in annual terms) in the first quarter at a rate of 5.4 per cent, in the second quarter by 4.1 per cent but in the third quarter by 3.1 per cent.⁴¹ At the same time, the rate of inflation steadily increased. According to the April forecast, consumer prices at the end of the year were expected to be 5.1 per cent higher than at the end of 2023, with an annual average inflation rate for the year of 6.6 per cent. But by the autumn there was no doubt that the trend was worryingly negative, with Rosstat declaring a final year-on-year rate of 9.5 per cent.⁴² As noted above, this negative trend led the Central Bank to increase its basic interest rate from 19 to 21 per cent on 25 October.⁴³

The rate of inflation may, in fact, be somewhat higher as there are suspicions that Rosstat’s current methodology may not be capturing with adequate precision the rate as experienced by most citizens. In late 2024 the rate of price increases of food products, which account for a large share of the spending of poorer households (e.g. potatoes), was much higher than that of non-food goods (e.g. cars, consumer durables, tourism and entertainment), which account for large shares of spending of wealthier households. The situation for many poorer families thus became very difficult.

What accounts for these negative indicators? As many analysts now agree, the Russian economy has been overheating, with excess demand fuelled above all by increased budget spending on the war, coupled with increasingly serious constraints on resources, above all labour.⁴⁴ By late 2024 the national unemployment rate fell to 2.3 per cent, but it was even lower in some industrial regions with significant concentrations of arms industry companies:
1.5 per cent in Nizhegorod oblast (dominated by Nizhny Novgorod city),
2 per cent in Tatarstan and 2.2 per cent in Chelyabinsk oblast.⁴⁵ This prompted assessments that the expansion of the arms industry was under threat from an acute shortage of workers.⁴⁶ Wages and salaries have increased steadily as labour shortages have risen, but the impact has been local as inter-regional labour mobility in Russia is limited.

With a leadership reluctant to curb the growth of military spending, in these circumstances the only effective solution, as the Central Bank understands, is to reduce effective demand by increasing the basic rate of interest and reducing the government’s use of low concessional rates of interest to support certain sectors and activities. These sectors include, not least, housing and the motor industry, but also agriculture, air travel to remote regions, and many privileges for children and elderly people. Another sector that also receives preferential treatment is the arms industry, but during the war the political commitment to this sector is so strong that the Central Bank has little prospect of reigning in its generous treatment. This means that, with a limited range of options, a rapid cooling down of the economy is unlikely, but by the end of 2024 there were some signs that the process had started. Early in December, industrial output data showed a slowing of growth in civilian branches and later in the month the Central Bank director, Nabiullina, noted that there were real signs of cooling in a number of sectors.⁴⁷ By March 2025 the signs were clearer, leading Kirill Tremasov, advisor to the Central Bank, to say that the next board meeting, on 21 March, might discuss lowering interest rates—but in the event it held the rate steady at 21 per cent.⁴⁸

Towards the end of the year there were a number of reports in Western media suggesting that the Russian economy was heading for serious trouble.⁴⁹ These appear to have been prompted by the Central Bank’s increase of its key rate to 21 per cent and a fall in the value of the rouble against the dollar in early December. However, they were not convincing; they overstated problems and underestimated the resilience of the Russian economy and its ability to adjust quickly to new conditions. But more sober assessments were also voiced, notably by exiled Russian economists Sergei Aleksashenko, Vladislav Inozemtsev and Dmitrii Nekrasov, who argued that, notwithstanding all the pressures and tensions, the Russian economy was still able to perform at a level permitting the continuation of the war.⁵⁰ However, they noted that the longer-term prospects were unfavourable because of inadequate investment and an inability to develop and produce truly modern technology—problems that are likely to deepen the longer the war continues. Other informed analysts soon echoed this assessment.⁵¹

The first months of 2025 suggest that the implementation of the federal budget is following a now familiar pattern. Total spending in January and February amounted to over 8 trillion roubles, but revenues only to 5.3 trillion roubles, giving a deficit of 2.7 trillion roubles, equivalent to 1.3 per cent of forecast GDP. This arose because of large advance payments on state contracts, in particular those under the State Defence Order. As in past years, the deficit will probably decline later in the year. At the same time, income from oil and gas as a share of total revenue fell to under 30 per cent and in absolute terms it was smaller than in 2024, while non-oil and -gas incomes increased by 11 per cent.⁵² This has become an established trend in recent years, and the government has been actively promoting it in so far as it reduces Russia’s dependence on the export of hydrocarbons. More concerning for the Ministry of Finance is the fact that the price of oil has been below the level on which the budget was based (i.e. about $60 per barrel, not $69.7; see table 1). The ministry does not rule out the possibility that the end of year deficit will be larger than the planned 0.5 per cent of GDP (see table 2).⁵³

VI. Conclusions

In 2025 Russia plans to spend 15.5 trillion roubles on its military, 7.2 per cent of its GDP—the largest share since Soviet times, although still some way from the level of 12–13 per cent in 1990.⁵⁴ If economic performance does not deteriorate to a significant extent, this level of spending should be manageable and it may prove possible to increase it to some extent during 2025 as the budget is implemented—if that is considered necessary. However, if as seems likely President Putin wishes to maintain spending on national projects, technological ‘leadership’, infrastructure and other non-military needs, then budgetary pressures could mount.

Putin appears to recognize this himself. At the expanded board meeting of the MOD in mid-December 2024, he addressed the issue of military spending:

Now, it is extremely important how much money we spend and what it results in. The [defence] minister [Andrey Belousov] said: we spend 6.3 percent of GDP on the military component to increase and strengthen defence capability.⁵⁵ This is quite an amount; about 2.5 percent higher than we spent before. But oddly enough, this is not the largest expenditure in the world, even in countries that are not involved in armed conflicts.

However, this is still a large sum, and we must use it rationally, first of all ensuring the social guarantees of our service personnel and effective operation of the defence industry complex. It is also very important to rationally use what the country is giving to the Armed Forces.⁵⁶

Later he added,

I will repeat what has just been said: 6.3 percent of GDP is spent on increasing and strengthening defence capability. We cannot increase this expenditure endlessly, because all components of the country’s life such as the economy, the social sphere in the broadest sense of the word, science, education, healthcare have to develop, too.

But to recognize the budgetary pressures generated by his war is one thing; to reduce them by ending military action is another. Developments since February 2022 do not inspire confidence that a rational decision will be taken; however, conditions have changed over time, not least with the re-election as president of the United States of Donald J. Trump, who even before the election declared that ending the war was a top priority. This author hopes, in conclusion, that this will be the last paper that he has to write on Russia’s military spending during this long brutal war, so costly in terms of lives, economic prospects and hopes.

Endnotes

1. 1 Russian Ministry of Economic Development, Сценарные условия функционирования экономики Российской Федерации, основные параметры прогноза социально-экономического развития Российской Федерации и прогнозируемые изменения цен (тарифов) на товары, услуги хозяйствующих субъектов, осуществляющих регулируемые виды деятельности в инфраструктурном секторе, на 2025 год и на плановый период 2026 и 2027 годов [Scenario conditions for the functioning of the economy of the Russian Federation, main parameters of the forecast socio-economic development of the Russian Federation, and projected changes in prices (tariffs) for goods and services of economic entities carrying out regulated types of activities in the infrastructure sector for 2025 and the planning period 2026 and 2027], 26 Apr. 2024.
2. 2 President of Russia, ‘Совещание по экономическим вопросам’ [Meeting on economic issues],
   3 May 2024 (author translation).
3. 3 Bank of Russia, ‘Bank of Russia increases the key rate by 100 bp to 19.00% p.a.’, 3 Sep. 2024.
4. 4 ‘В России безработица в июне обновила исторический минимум—2,4%’ [In Russia, unemployment in June hit a historic low—2.4%], Interfax, 31 July 2024.
5. 5 Russian Government, ‘Решения, принятые на заседании правительства 24 сентября 2024 года’ [Decisions adopted at the government meeting on 24 September 2024], 29 Sep. 2024.
6. 6 Russian State Duma, Draft Federal Law no. 727320-8 ‘О федеральном бюджете на 2025 год и на плановый период 2026 и 2027 годов’ [On the federal budget for 2025 and the planning period 2026 and 2027], 30 Sep. 2024.
7. 7 Russian State Duma, Draft Federal Law no. 448554-8 ‘О федеральном бюджете на 2024 год и на плановый период 2025 и 2026 годов’ [On the federal budget for 2024 and the planning period 2025 and 2026], 30 Sep. 2023.
8. 8 Veretennikova, K., ‘Депутаты проявили бюджетный оптимизм’ [Deputies show budgetary optimism], Kommersant, 24 Oct. 2024.
9. 9 ‘Набиуллина не исключила дальнейшего повышения ключевой ставки ЦБ в октябр’ [Nabiullina does not rule out a further increase in the Central Bank’s key rate in October], Finmarket, 26 Sep. 2024.
10. 10 Bank of Russia, ‘Bank of Russia increases the key rate by 200 bp to 21.00% p.a.’, 25 Oct. 2024.
11. 11 ‘Правительство внесло в Госдуму проект федерального бюджета на 2025–2027 гг.’ [The government submits a draft federal budget for 2025–2027 to the State Duma], Finmarket, 20 Sep. 2024.
12. 12 Savchishina, K. E., ‘Отзыв на проект федерального закона «О федеральном бюджете на 2025 год и на плановый период 2026 и 2027 годов»’ [Feedback on the draft federal law ‘On the federal budget for 2025 and the planning period 2026 and 2027’], Institute of Economic Forecasting of the Russian Academy of Sciences, 8 Oct. 2024, pp. 5–6.
13. 13 Russian Accounts Chamber, Заключение Счетной палаты Российской Федерации на проект федерального закона № 727321-8 «О бюджете Фонда пенсионного и социального страхования Российской Федерации на 2025 год и на плановый период 2026 и 2027 годов» [Conclusion of the Accounts Chamber of the Russian Federation on draft federal law no. 727321-8 ‘On the budget of the Pension and Social Insurance Fund of the Russian Federation for 2025 and the planning period 2026 and 2027’] (Accounts Chamber: Moscow, 10 Oct. 2024), p. 35.
14. 14 ‘Госдума приняла бюджет во втором чтении с поправками на ₽8 трлн’ [State Duma passes the budget at the second reading with amendments of ₽8 trillion], RBK, 14 Nov. 2024.
15. 15 [State Duma passes the budget at the second reading] (note 14).
16. 16 Tsulanov, M., ‘Госдума приняла закон о федеральном бюджете на 2025–2027 годы’ [State Duma passes law on federal budget for 2025–2027], Vedomosti, 21 Nov. 2024, p. 1.
17. 17 Russian Federal Law no. 419-ФЗ ‘О федеральном бюджете на 2025 год и на плановый период 2026 и 2027 годов’ [On the federal budget for 2025 and the planning period 2026 and 2027], signed into law 30 Nov. 2024.
18. 18 Russian Federal State Statistics Service (Rosstat), ‘Национальные счета: Валовой внутренний продукт—ВВП годы (с 1995 г.)’ [National accounts: Gross domestic product—Annual GDP (since 1995)], 7 Feb. 2025.
19. 19 E.g. the new website of the Russian Ministry of Defence (MOD), ‘Социальные гарантии’ [Social guarantees], which links to the specialized site for contract servicemen; the informative specialized site of Moscow oblast, ‘Контракт на СВО.РФ’ [Contract on SVO], which gives the monetary rewards for destroying or capturing the adversary’s weapons (maximum 1 million roubles for Abrams, Leopard and Challenger tanks and HIMARS); and ‘Военная служба’ [Military service], Объясняем.рф.
20. 20 ‘В российском регионе выплаты за контракт с Минобороны увеличили до четырех миллионов рублей’ [In a Russian region, payments for a contract with the MOD have been increased to four million roubles], Karelia News, 4 Jan. 2025.
21. 21 Russian Presidential Decree no. 98 ‘О дополнительных социальных гарантиях военнослужащим, лицам, проходящим службу в войсках национальной гвардии Российской Федерации, и членам их семей’ [On additional social guarantees for military personnel, persons serving in the National Guard Troops of the Russian Federation, and members of their families], 5 Mar. 2022.
22. 22 Golts, A., ‘The Kremlin’s implicit deal with soldiers starting to fall apart’, Russia Post, George Washington University, 18 Nov. 2024.
23. 23 ‘Правительство РФ отменило единовременные выплаты заключенным, подписавшим контракт с Минобороны РФ’ [The Russian government cancels one-off payments to prisoners who sign a contract with the Russian Ministry of Defence], Meduza, 31 Dec. 2025.
24. 24 Tumakova, I., ‘«Смертономика»: Владислав Иноземцев—о том, как «гробовые» и другие выплаты изменили экономику страны’ [‘Deathonomics’: Vladislav Inozemtsev on how ‘coffin’ and other payments have changed the country’s economy], Novaya Gazeta, 25 July 2023.
25. 25 Defenders of the Fatherland.
26. 26 Maier, A., ‘Фонд «Защитники Отечества» распределил выделенные правительством 1,314 млрд рублей’ [Defenders of the Fatherland foundation allotted 1314 billion roubles by the government], Vedomosti, 19 June 2024.
27. 27 Kusmin, V., ‘Фонд “Защитники Отечества” получит 18 млрд рублей на поддержку участников СВО’ [The Defenders of the Fatherland foundation will receive 18 billion roubles to support participants in the SVO], Rossiiskaya Gazeta, 19 Feb. 2024.
28. 28 ‘Биография председателя фонда “Защитники Отечества” Анны Цивилевой’ [Biography of Anna Tsivileva, chair of the Defenders of the Fatherland foundation], TASS, 3 Apr. 2023.
29. 29 Russian Presidential Decree no. 129 ‘О комиссии Государственного Совета Российской Федерации по вопросам поддержки ветеранов боевых действий–участников специальной военной операции и членов их семей’ [On the commission of the State Council of the Russian Federation on support for veterans of combat operations–participants in a special military operation and members of their families], 10 Mar. 2025.
30. 30 Cooper, J., ‘Implementation of the Russian federal budget during January–July 2022 and spending on the military’, SIPRI Background Paper, Oct. 2022; Cooper, J., ‘Russia’s military expenditure during its war against Ukraine’, SIPRI Insights on Peace and Security no. 2023/7, June 2023; and Cooper, J., ‘Another budget for a country at war: Military expenditure in Russia’s federal budget for 2024 and beyond’, SIPRI Insights on Peace and Security no. 2023/11, Dec. 2023.
31. 31 Russian Government, Various decisions, Various dates in 2024 (in Russian).
32. 32 Evans, A., ‘Ukraine’s Kursk incursion: Six month assessment’, Institute for the Study of War (ISW), 6 Feb. 2025.
33. 33 Russian Government, Various decisions, Aug. 2024 (in Russian).
34. 34 E.g. Khinshtein is described as ‘odious’, the ‘author of denunciations’ and ‘a skilled PR man’ in Kuznetsov, P., ‘«Заниматься борделем было гораздо интереснее, чем эвакуацией»’ [‘Running a brothel was much more interesting than evacuating it’], Novaya Gazeta Evropa, 28 Dec. 2024 (author translation). See also ‘Хинштейн отказал в выплате компенсаций за утраченное имущество жителям эвакуированных районов Курской области’ [Khinshtein refuses to pay compensation for lost property to residents of evacuated districts in Kursk oblast], The Insider, 30 Dec. 2024.
35. 35 Russian Government, Various decisions, Sep.–Nov. 2024 (in Russian).
36. 36 Russian Government, Various decisions, Feb. 2025 (in Russian).
37. 37 Interfax, ‘Губернатор оценил затраты на восстановление Курской области из-за войны в 700 миллиардов рублей. Это сравнимо с годовым валовым продуктом региона’ [The governor estimates the cost of rebuilding Kursk oblast due to the war at 700 billion roubles. This is comparable to the annual gross product of the region], Meduza, 11 Nov. 2024.
38. 38 Panov, T., ‘«Посылают на убой. И цена твоей жизни—копейки»’ [‘They send you to slaughter. And the price of your life—pennies’], Republic, 6 Dec. 2024.
39. 39 Russian Government Directive no. 476, 28 Feb. 2025 (in Russian).
40. 40 ‘Федеральные власти сократили финансирование прифронтовых регионов. Сильнее всего—Белгородской области, почти на 37%’ [The federal authorities have cut funding for the frontline regions. Most severely—Belgorod oblast, by almost 37%], Verstka, 22 Nov. 2024. In the case of Bryansk oblast the reduction was 23.5%, Rostov 27% and Crimea 13%. The source explains that the data was obtained from the budget.gov.ru website.
41. 41 ‘Росстат подтвердил оценку роста ВВП РФ в 3-м квартале на уровне 3,1%’ [Rosstat confirms estimate of Russian GDP growth in Q3 at 3.1%], Finmarket, 13 Dec. 2024.
42. 42 Russian Federal State Statistics Service (Rosstat), Социально-экономическое положение России 2024 года [Socio-economic situation of Russia 2024] (Rosstat: Moscow, 2024), p. 6.
43. 43 ‘Инфляция в РФ в ноябре составила 1,43%’ [Inflation in Russia in November was 1.43%], Finmarket, 11 Dec. 2024; and Bank of Russia (note 10).
44. 44 E.g. Kolyandr, A. and Prokopenko, A., ‘Is Russia’s overheated economy finally starting to cool?’, The Bell, 13 Sep. 2024.
45. 45 Fedorov, E., ‘ВПК-2024: дефицит кадров становится угрожающим’ [Military-industrial complex 2024: Personnel shortage becomes threatening], Voennoe obozrenie, 30 Dec. 2024.
46. 46 Fedorov (note 45).
47. 47 ‘Охлаждение с подогревом: российская экономика замедляется в гражданском секторе, но не в военном’ [Cooling with heating: Russia’s economy is slowing down in the civilian sector, but not in the military sector], Re:Russia, 5 Dec. 2024; and ‘В ряде секторов экономики появились признаки охлаждения—Набиуллина’ [Signs of cooling in a number of economic sectors—Nabiullina], Finmarket, 21 Dec. 2024.
48. 48 Prokopenko, A., Kasyanchuk, D. and Kolyandr, A., ‘No, Western companies aren’t rushing back to Russia’, The Bell, 7 Mar. 2025; and Bank of Russia, ‘Банк России принял решение сохранить ключевую ставку на уровне 21,00% годовых’ [The Bank of Russia decides to keep the key rate at 21.00% per annum], 21 Mar. 2025.
49. 49 E.g. Belton, C., ‘Russia’s elite sound the alarm on the economy amid high interest rates’, Washington Post, 10 Dec. 2024; and Bunzel, T. and Ribakova, E., ‘The Russian economy remains Putin’s greatest weakness’, Foreign Affairs, 9 Dec. 2024.
50. 50 Aleksashenko, S., Inozemtsev, V. and Nekrasov, D., Надёжный тыл диктатора: Российская экономика на фоне войны [Dictator’s reliable rear: Russian economy at the time of war] (Center for Analysis and Strategies in Europe: Limassol, Nov. 2024).
51. 51 E.g. Prokopenko, A., ‘Putin is not yet desperate’, Foreign Affairs, 21 Jan. 2025; Connolly, R., ‘Russia’s wartime economy isn’t as weak as it looks’, Royal United Services Institute (RUSI), 22 Jan. 2025; and Cooper, J., ‘Russia’s economy is stagnating—But that won’t force it to end the war’, The Conversation, 10 Mar. 2025.
52. 52 Visloguzov, V., ‘Бюджет набирает ход’ [The budget is gaining momentum], Kommersant, 11 Mar. 2025.
53. 53 ‘Минфин допустил превышение плана по дефициту бюджета РФ в 2025 г. при нефти в $60/барр.’ [The MOF admits exceeding the plan for the Russian budget deficit in 2025 with oil at $60/bbl.], Interfax, 4 Mar. 2025.
54. 54 Cooper, J., ‘The military expenditure of the USSR and Russian Federation, 1987–97’, SIPRI Yearbook 1998: Armaments, Disarmament and International Security (Oxford University Press: Oxford, 1998), p. 246.
55. 55 The figure of 6.3% refers to the ‘National defence’ chapter only, the actual share being 7.2% (see table 6).
56. 56 President of Russia, ‘Expanded meeting of the Defence Ministry Board’, 16 Dec. 2024. Russian original: President of Russia, ‘Расширенное заседание коллегии Минобороны’ [Extended meeting of the Ministry of Defence Board], 16 Dec. 2024.