“A further increase in military spending in the face of declining revenues will require the redirection of funds from other priority areas.”, — write: www.unian.ua
A further increase in military spending in the face of declining revenues will require the redirection of funds from other priority areas.
Russia is facing growing income restrictions / photo ua.depositphotos.comRussia’s defense industry may experience a sharp slowdown in growth this year. The Kremlin has given priority to economic stability and balanced finances, rather than increasing the costs of the war in Ukraine.
The publication Bloomberg writes that, according to the three-year forecast of the Ministry of Economy of the Russian Federation, sectors related to state defense orders, including military equipment and components, UAVs and ammunition, will show an annual growth of 4-5% this year compared to about 30% in recent years.
A boom in arms production fueled by government spending, 24-hour factory shifts and an exodus of labor from the civilian sector is faltering for the first time in four years of Russia’s full-scale invasion of Ukraine. This demonstrates the reaction of the authorities to the growing tension in the Russian economy.
Defense, which remains the largest item of government spending, was the only major item to be cut, while overall spending is expected to rise in line with inflation. Overall, war-related spending will decline by nearly 11% this year after more than 30% annual growth in 2025.
The Russian authorities must make a difficult choiceA further increase in military spending in the face of declining revenues will require the redirection of funds from other priority areas and an increase in the debt burden. It would also increase inflationary pressures, which could lead to a longer period of high interest rates that would further strain the civilian economy.
“Throughout this year, they will be at a crossroads – between pouring resources into the war and beginning the transition to a paramilitary state,” said Oleksandr Gabuev, director of the Carnegie Center for Russia and Eurasia in Berlin.
According to him, the key variables will be the results of the negotiations and the situation on the battlefield.
Russia faces growing revenue constraints due to lower oil prices, deep discounts on “black gold” and logistical problems exacerbated by sanctions. A strong ruble makes the situation even worse. At the same time, the liquid reserves of the sovereign welfare fund are apparently close to the minimum necessary to ensure financial stability, forcing the government to finance the budget deficit through new borrowings.
Russia’s defense sector is slowing downAccording to estimates by the Ministry of Economy of the Russian Federation, production growth in the optical and electronic industry, which includes components for military equipment, decreased from 28% in 2024 to 11% in 2025. Production of vehicles, including tanks and other military equipment, slowed to 27% from 34% a year ago, and production of finished metal products, including bombs and weapons, slowed to 14% from 32%.
Structural economic obstacles also increase the cost of further expansion of the defense industry.
Active recruitment by military factories, which have hired about 800,000 people over the past three years, has exacerbated labor shortages and intensified wage competition with civilian sectors. Rapid wage growth fueled inflation, keeping interest rates at record highs for several months before gradually easing.
At the same time, fiscal tightening may also give the central bank more room to ease monetary conditions and provide long-awaited relief to the economy as a whole.
Economy of Russia – the latest newsIt is increasingly difficult for Russia to find money for the war against Ukraine, so Vladimir Putin decided to significantly increase the tax pressure this year. Thus, the tax rate on consumption for Russians increased from 20% to 22%, which should bring an additional 12.3 billion dollars to the budget of the aggressor country.
At the same time, Deputy Minister of Finance of the Russian Federation Volodymyr Kolykhov said that revenues from the sale of oil and gas this year may be “much lower” than the planned level.
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