Russia Plans $202.6 Billion in Defense Spending in 2027 as Deficit Widens
Key Facts
Russia plans to spend 17.1 trillion rubles, equivalent to $202.6 billion, on defense in 2027, an increase of about 27% from the amount previously included in the plan, according to documents seen by Reuters. Proposed defense spending had stood at 13.5 trillion rubles, or $159.8 billion. Reuters described the planned figure as the highest since the start of the war in Ukraine in 2022. The increase comes as the documents raised the 2026 budget deficit estimate to 3.2% of gross domestic product, compared with a previous estimate of 1.6%. The figures put military spending and the deficit at the forefront of Russia's next budget.
The deficit estimates point to fiscal pressure already in place this year: the cumulative shortfall reached 5.8 trillion rubles, or $72 billion, through the end of August. That was about 50% higher than in the same period a year earlier and exceeded the revised target of 4.8 trillion rubles. In a report published in October, the Associated Press said liquid assets available for spending in the National Wealth Fund had fallen to 1.7% of gross domestic product. Those assets include Chinese currencies and gold, the report said. An economic adviser told the Associated Press that available financing was sufficient to cover the deficit in 2027 and possibly 2028, but linked that outlook to costs for households and businesses from higher taxes.
At the same time, the manufacturing reading showed limited improvement in October, with the S&P Global Russia Manufacturing Purchasing Managers' Index rising to 49.9 points from 49.8 in September. The 50-point level marks the boundary between growth and contraction. Output and new orders fell for a third consecutive month, but the decline in output was slight, while the drop in new orders was the slowest over that period. New export orders contracted for a 12th consecutive month, with the decline at its sharpest pace since May 2022. Survey participants linked weak external demand to a drop in orders from Commonwealth of Independent States countries, particularly Kazakhstan.
At companies, employment continued to decline amid layoffs and voluntary resignations, though the pace of contraction was the slowest since the start of the year. Backlogs also shrank for a 21st consecutive month. Input prices rose sharply, though at the slowest pace in seven months, while output price inflation slowed to its lowest level since April. Business optimism improved to its highest level since June, supported by hopes for a stable market environment and new customer gains, although sentiment remained historically weak. The indicators paint a mixed picture of manufacturing, with some easing in price pressures alongside continued declines in output and orders.
The 2027 budget draft includes cuts in funding for social policy of 7%, education of 6% and health care of 6.8%, compared with the initial plan, according to a Reuters report. Finance Minister Anton Siluanov said the budget's base oil price assumption for 2027-2029 was $50 a barrel and that commitments would be funded on that basis. He added that improved conditions could allow the National Wealth Fund to be replenished. The draft targets a deficit equivalent to 2.2% of gross domestic product in 2027, with expected revenue of 43.3 trillion rubles and spending of 48.8 trillion rubles. In contrast, a study by the Kyiv School of Economics warned that fiscal buffers could be exhausted by early 2028 unless taxes are raised or social spending is cut.
Attention is also turning to peace talks scheduled in Abu Dhabi on November 10 and 11, mediated by the United States and focused on postwar security arrangements, de-escalation and humanitarian issues. The Kremlin confirmed that a Russian delegation would take part. The Associated Press had reported in its coverage of Russian strikes on November 3 that Moscow and Kyiv were preparing for a new round of negotiations the following week. The report said a wave of overnight strikes targeted power plants and damaged hospitals. The expected talks come as Russia's financial and economic indicators point to pressure on the budget and industrial sector.