Russia Overspends on Putin’s War in Ukraine by $28bn

The War Economy Blows Its Own Budget

Russia entered 2025 with a plan. The Kremlin’s finance ministry had set a ceiling of 13.5 trillion rubles — roughly $162 billion at prevailing exchange rates — for national defence. That was already a record, already nearly a third of everything the state intended to spend. By year’s end, actual military expenditure had blown through that ceiling by the equivalent of $28 billion, finishing closer to $190 billion and consuming 7.5 percent of Russia’s entire GDP. That’s the highest share of economic output directed at war by any major power since the Soviet Union’s collapse. The numbers don’t just reveal the price of Vladimir Putin’s invasion of Ukraine. They describe a state that has lost control of its own fiscal arithmetic.

A Budget Built for a War Moscow Didn’t Plan to Last This Long

When Russia launched its full-scale invasion of Ukraine in February 2022, the Kremlin’s inner circle appeared to assume Kyiv would fall within days. The 2022 federal budget had been drafted without any visible preparation for prolonged conflict — military allocations that year tracked the long-established pre-war trend, reflecting an exercise in strategic deception as much as fiscal planning.

That confidence collapsed within a week. What followed was a four-year escalation in which each successive budget has broken the last year’s record.

Russia’s military spending grew by 5.9 percent in real terms in 2025, reaching $190 billion, according to the Stockholm International Peace Research Institute’s April 2026 annual survey — the most authoritative independent dataset on global defence expenditure. At 7.5 percent of GDP, this exceeds three times the global average of 2.5 percent. By comparison, the United States spent around 3.4 percent of GDP on defence in the same year.

The war’s cumulative toll on Russia’s treasury is staggering. From 2022 through 2025, total Russian war-related expenditures reached an estimated $522 billion in taxpayer funds — a sum that, according to analysts at United24, could have financed Russia’s entire higher education system for 24 years. Social spending, meanwhile, has fallen to just 25.1 percent of the federal budget, its lowest share in two decades.

The $28 Billion Overrun: What the Numbers Actually Mean

Russia’s military budget overrun is not a rounding error. It reflects a structural feature of wartime fiscal management: the gap between what Moscow publishes and what Moscow spends keeps widening with each passing quarter.

The mechanism is partly deliberate opacity. Roughly 84 percent of Russia’s defence-related spending sits in classified budget lines, a fact confirmed by SIPRI’s March 2026 analysis of the federal budget draft. Official “national defence” figures capture only the visible layer. The real number emerges from total federal expenditure, GDP estimates from Rosstat, and cross-referencing with the central bank’s monetary aggregates.

What those methods reveal is an economy that spent $2.7 billion per week on its war effort in 2025. According to year-end estimates, Russia’s military expenditures ran nearly 20 percent above initial plans for the year. The Center for Countering Disinformation in Kyiv, drawing on Russian Ministry of Defence disclosure and independent cross-checks, put total expected spending for the year at $198.8 billion — around $30 billion above the approved budget line.

The gap also reflects the brute economics of war inflation. Ammunition, drone components, soldier pay, and the mobilisation bonuses Moscow now offers to attract volunteers all carry price tags that budgeters set months in advance and actual combat burns through at a pace no spreadsheet predicted. Russia has been running the equivalent of a wartime procurement auction — and the prices keep rising.

In the first nine months of 2025 alone, Russia spent $146.4 billion from its federal budget on military needs. That is four times the level of 2021, accounting for 39 percent of total government outlays. The pre-war average, spanning 2019 to 2021, was roughly 15 percent.

Why Can’t Moscow Simply Stop?

This is the question that defines the strategic landscape — and the answer is more economically constrained than it might appear.

What does Russia’s war overspending mean for its domestic economy? In short: sustained overheating, rising debt servicing costs, and a structural squeeze that is redirecting resources away from civilian consumption faster than official commentary acknowledges. The Russian economy is not collapsing. But it’s running a temperature that no central banker can easily bring down.

In October 2024, the Bank of Russia raised its key policy rate to 21 percent in an attempt to choke inflation. The rate has since been reduced in stages to 17 percent, but borrowing costs remain prohibitive for businesses and consumers. The IMF forecast Russian GDP growth at just 0.6 percent in 2025 and 1.0 percent in 2026 — barely above stagnation. The Economic Forecasting Institute of the Russian Academy of Sciences was only marginally more optimistic.

Finance Minister Anton Siluanov has acknowledged the bind: revised GDP growth forecasts have been marked down repeatedly, credit demand has weakened under the weight of high interest rates, and oil and gas revenues — the Kremlin’s traditional fiscal shock absorber — fell 19.4 percent in ruble terms in the 12 months through November 2025. The National Welfare Fund, the sovereign savings buffer that Moscow spent years building as a hedge against oil price volatility, has been drawn down by 59 percent since the invasion began.

What follows, however, is the structural paradox that makes the spending unlikely to stop: the war economy has become self-sustaining in the worst possible way. Military production and military pay are now significant drivers of household income and regional employment in parts of Russia. Unwinding them would cause exactly the kind of visible economic pain that the Kremlin most fears — not invisible fiscal deterioration, but localised unemployment and wage deflation in communities that have organised around war contracts.

The Downstream Consequences: Markets, Sanctions, and Europe’s Calculation

The fiscal picture matters well beyond Moscow’s budget office. Russia’s defence spending trajectory carries second-order effects that are already reshaping decisions in European capitals, in bond markets, and in the corridors of international financial institutions.

For Western policymakers, the $28 billion overrun is simultaneously evidence of strain and evidence of resilience. Russia has overspent its plans — but it has, so far, found ways to fund the excess. The National Welfare Fund provided cash in earlier years. Now the vehicle is domestic debt. Yields on 10-year Russian state bonds (OFZ) have exceeded 15 percent, making meaningful borrowing from capital markets nearly impossible — the net debt raised in recent quarters barely exceeded $4 billion, or 0.16 percent of GDP. Yet the government continues to spend. The implication is a growing reliance on monetary financing — a path that historically ends in accelerating inflation, not managed fiscal consolidation.

For European NATO members, Russia’s spending trajectory has been a forcing function. Europe’s combined defence budgets surpassed Russia’s in 2025 only when measured at market exchange rates — $457 billion versus $462 billion when Russia’s spending is converted at purchasing power parity, according to IISS data cited by the Financial Times. Germany’s defence budget climbed 23 percent last year to $86 billion. The logic is clear: Russia has demonstrated a willingness to dedicate a share of economic output to its military that no European democracy has matched outside wartime.

For sanctions architects in Washington and Brussels, the overrun raises an uncomfortable question. Russia’s export earnings from goods sales ran at approximately $413 billion in 2025 — slightly below 2024’s $434 billion, but not dramatically so. The oil price cap and sanctions regime have trimmed revenues at the margins without yet reaching the structural chokepoint that would force Moscow to choose between guns and basic government functions.

That chokepoint may still come. Independent analysts estimate that tighter sanctions enforcement could reduce Russia’s oil revenues to as low as $46 billion in 2026, down from $155 billion in 2025 — a shock of that magnitude would render the current spending trajectory genuinely unsustainable. But that scenario requires political will in sanctioning capitals that has, so far, remained incomplete.

The Counterargument: Russia Has Surprised Before

It’s worth pausing before declaring the trajectory unsustainable.

Russia’s wartime fiscal position has been described as untenable by credible analysts at multiple points since February 2022 — and each time, Moscow has found a path forward. Energy revenues proved more durable than predicted. Inflation, though elevated, has not spiralled into the kind of hyperinflationary collapse that some early models forecast. The domestic banking system, dominated by state-owned institutions, has absorbed shocks through mechanisms that don’t translate neatly to Western financial frameworks.

SIPRI’s March 2026 analysis explicitly notes that higher oil prices resulting from the Iran war launched by Israel and the United States in early 2026 are likely to ease Russia’s budget position — potentially significantly. A $20 per barrel increase in Urals crude translates to tens of billions in additional revenue, which reshapes the deficit arithmetic in Moscow’s favour almost immediately.

There’s also the question of what “unsustainable” means politically. The Atlantic Council’s analysis of Russia’s wartime economy noted in December 2025 that Moscow does not appear willing to direct the share of resources toward defence that the Soviet Union did during the Cold War — suggesting the Kremlin is deliberately managing below its theoretical maximum, preserving political cushion. That judgement has since been complicated by the 2026 budget, which for the first time since the invasion nominally reduced national defence allocations to 14.9 trillion rubles, even as analysts universally expect the budget to be amended upward as the year progresses.

The picture is more complicated, in other words, than either “Russia is running out of money” or “Russia can absorb anything.” The truth lives in the narrow, uncomfortable band between those two claims.

The Reckoning Moscow Can’t Defer Forever

The $28 billion overrun is not the story’s headline. It’s the symptom. The story is that Russia has been conducting a war whose costs it systematically underestimated — in lives, in rubles, and in the slow erosion of the economic architecture it built during the 2000s oil windfall.

Putin signed the 2026 federal budget in December 2025, allocating nearly 40 percent of all expenditures to the military and security sector. The 2026 defence figure is nominally lower than 2025’s. Analysts don’t believe it will stay that way. They’ve been right before.

What’s changing — slowly, unevenly, but unmistakably — is the quality of the trade-offs Moscow is making. Debt servicing costs that ran at 0.9 percent of GDP before the war are heading toward 2 percent. Tax rates on corporations and individuals have been raised twice in recent years to plug gaps that oil revenues once papered over. Social spending is at a 20-year low. The National Welfare Fund is 59 percent depleted.

Russia can, as its officials insist, keep fighting. The more precise question — the one that neither the Kremlin’s propagandists nor the West’s most optimistic analysts have answered convincingly — is at what cumulative cost to the economic foundations that make sustained power projection possible in the first place.

Every $28 billion overrun brings that reckoning one budget cycle closer.