"Money Pit" Ukraine War: "Russia to Overspend on Military Costs by Over 42 Trillion Won This Year"

[Financial News]  \r\n
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Russia is expected to spend at least 2 trillion rubles, or about 42.42 trillion won, more on the war in Ukraine than it budgeted for this year. The war, along with sanctions, is deepening Russia's already massive fiscal deficit and is likely to put even greater pressure on public finances.
Financial Times (FT) reported on the 29th local time that it had obtained a letter sent by Finance Minister Anton Siluanov to the cabinet.
In an estimate made in February, the Ministry of Finance projected that war costs would exceed the budget by 2 trillion rubles. Under a "negative scenario," it warned that excess military spending could reach as much as 4 trillion rubles this year.
The Ministry of Finance also expected war-related budget overruns to reach 4 trillion rubles each in 2027 and 2028.
Siluanov recommended that the cabinet freeze planned fiscal spending in other sectors outside military costs. He said 2.9 trillion rubles in non-military spending should be frozen this year, followed by 5.4 trillion rubles next year and 7.1 trillion rubles in 2028, to cover the rapidly rising war bill.
That means the 16.84 trillion rubles Russia has allocated for defense this year, or about 40% of its total budget, is far from enough to cover the enormous cost of the war.
Russia's fiscal deficit is already far worse than initially expected.
Russia had planned a total fiscal deficit of 3.8 trillion rubles this year, but the deficit for January through April had already reached 5.9 trillion rubles. That amounts to 2.5% of GDP. It is the largest deficit since President Vladimir Putin ordered the invasion of Ukraine in 2022.
There was some relief after Siluanov called for a freeze on non-military spending. Energy prices rose above $100 per barrel for the first time since 2022 because of the Iran War, boosting fiscal revenue. He said additional tax revenue of 200 billion rubles was secured in April through energy exports.
Even so, that is not enough to cover the ballooning cost of the war in Ukraine.
In an interview with the Russian newspaper Kommersant, published on the 27th, Siluanov stressed the need to direct additional resources toward key priorities.
He also suggested that further cuts to non-military fiscal spending may be necessary, saying, "The reserve fund is not unlimited."
The war in Ukraine, now in its fifth year, is also placing a severe burden on the Russian economy.
The Ministry of Economy recently cut its forecast for this year's GDP growth by nearly 1 percentage point, lowering it to 0.4%. It had expected the economy to recover from next year, but the new outlook is much weaker than the previous forecast.
It revised its growth forecasts for next year and 2028 to 1.4% and 1.9%, respectively, down from 2.8% and 2.5% in September last year.
Sophia Donets, chief economist at Moscow-based T-Investment, said people are anxious about which areas of fiscal spending will be cut as military costs surge. She added that concerns are also growing that the government will raise taxes to make up for the revenue shortfall.
Renat Suleymanov, a ruling party lawmaker, also recently said that "tanks and shells have no consumer value and only fuel inflation," adding that the war should end "as soon as possible" because of the economic fallout from military spending.
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dympna@fnnews.com Song Kyung-jae Reporter