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Russia’s budget deficit narrowed to 1% of GDP in the first quarter of 2025, equivalent to 2.17 trillion roubles ($25.5 billion), according to a statement released by the Finance Ministry on Tuesday. This marks an improvement from the 1.3% of GDP reported in the first two months of the year.
However, the current deficit still represents a sharp increase compared to the 0.1% deficit recorded in Q1 2024, highlighting ongoing fiscal pressures.
Spending Surges While Energy Revenues Fall
The Finance Ministry attributed the elevated deficit to a 24.5% year-on-year rise in state spending, alongside a near 10% drop in oil and gas revenues. These revenues remain a key source of income for Russia’s budget, and their decline continues to weigh on fiscal performance.
“The increased spending is due to the accelerated financing of expenditures in January and will not affect the target parameters of the structural balance for 2025 overall,” the ministry noted.
Russia is aiming for a full-year deficit of just 0.5% of GDP, or 1.17 trillion roubles ($13.7 billion). By comparison, the 2024 fiscal deficit stood at around $34 billion, or 1.7% of GDP.
War-Driven Spending and Inflation Pressures
Russia’s elevated spending levels continue to be driven by military expenditures related to its ongoing operation in Ukraine, which have kept the deficit near 2% of GDP for the past three years.
This sustained fiscal stimulus has also contributed to higher inflation, prompting the Central Bank of Russia to maintain elevated interest rates in an effort to curb price growth. The central bank has repeatedly cited government spending as a key driver of inflationary pressure.
While the first-quarter narrowing of the budget gap suggests some improvement in fiscal discipline, analysts warn that persistently high spending and weaker energy revenues could make it difficult for Russia to meet its 2025 budget targets without further adjustments.
