Russia's government debt is expected to increase in 2025 due to a widening budget deficit fueled by high military spending and falling oil revenues. The country will rely heavily on domestic borrowing to finance this gap, as international capital markets remain largely inaccessible due to sanctions.
Rising
government debt
· Borrowing more than
planned: As of September 2025, Russia's Finance Minister stated the
country would borrow more than originally planned for the year to cover a
rising budget deficit. By July 2025, the Ministry of Finance had already issued
3.0 trillion rubles in bonds, a significant increase from the previous year.
· Widening budget
deficit: The government has repeatedly revised its 2025 budget deficit
target upward. After initially projecting a deficit of 0.5% of GDP, it was
raised to 1.7% in spring and then to 2.6% in September 2025. By mid-2025, the
deficit had already neared its annual target, with spending outpacing revenue
growth.
· Increasing debt-to-GDP ratio: While Russia's overall debt-to-GDP ratio is still relatively low compared to many developed countries, it is projected to rise. Trading Economics forecasts it will reach 19.0% by the end of 2025, continuing an upward trend.
Reasons
for the increase
· High military
expenditure: Escalating costs for the war in Ukraine and increased funding
for national defense and internal security have driven up government spending.
· Lower oil and gas
revenues: Volatile global energy markets have resulted in a decline in
Russia's oil and gas revenues throughout 2025, limiting the government's income
and putting greater pressure on its finances.
· Domestic
financing: With sanctions cutting Russia off from Western capital markets,
the government is primarily relying on domestic borrowing and draining its
National Wealth Fund (NWF) to cover the deficit.
· High borrowing costs: The high domestic interest rates set by the Central Bank to combat inflation make domestic borrowing expensive for the government.
Implications
and risks
· Fiscal stress: The
widening budget deficit and increasing debt indicate worsening fiscal stress,
especially as liquid reserves in the NWF are being rapidly depleted.
· Unsustainable
trajectory: Analysts from the Kyiv School of Economics (KSE) Institute and
others have warned that the current fiscal trajectory is unsustainable and
could threaten Russia's financial stability, particularly if global oil prices
decline further.
· Further tax hikes and austerity: As options for financing the deficit narrow, the Kremlin has increased taxes on corporations and individuals and may consider further tax hikes or cuts to non-essential spending in the future.
Russia's Expected Debt Increase in 2025
Key
Factors Driving Debt Increase
· Growing Budget
Deficit: Russia faces a record-breaking budget deficit, fueled by a
decline in oil and gas revenues and a sharp increase in government spending,
especially on defense.
· Increased Domestic
Borrowing: To cover the deficit and rising costs, the Russian government
is relying more heavily on domestic borrowing through bond issuance.
· High Borrowing
Costs: The Central Bank's high interest rates, at 18%, make borrowing
expensive, increasing debt servicing costs for the government and potentially
displacing other spending priorities.
· Shrinking National Welfare Fund: Liquid assets in the National Welfare Fund are decreasing, further necessitating debt issuance to finance the budget gap.
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Comments
Russia will suffer further losses as Ukraine’s Missles hit Russian Oil and Gas facilities. European countries will likely stop buying Oil and Gas from Russia. Interest Rates are 18%, Government Debt is 19% and Debt-to-GDP is 2.6%. If India or Turkey lowers its Russian Oil and Gas Imports, Russia’s ability to continue funding their war on Ukraine will end.
Norb Leahy, Dunwoody GA Tea Party Leader
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