War Spending Surge Leaves Russia Struggling to Find Funds

Russia’s banking sector is beginning to face liquidity pressures in rubles. The situation is considered likely to reduce banks’ ability to absorb government bonds, potentially hampering the government’s efforts to finance an ever-widening budget deficit caused by rising military expenditure.

Citing detikFinance, the pressure on the banking sector has emerged amid Russia’s ballooning budget deficit. The situation is expected to force the Russian Finance Ministry to seek additional financing through loans worth trillions of rubles throughout this year.

Taras Skvortsov, Vice President and Chief Financial Officer of Sberbank, said that since the start of the year, around 2 trillion rubles, or roughly US$25.2 billion, in cash has been withdrawn from the banking system. This has made banking liquidity increasingly tight.

“At the moment, banks only have enough funds to lend to their customers. That is their core business,” Skvortsov said, as quoted by Reuters.

“You can buy OFZ bonds, particularly without a significant premium, when you have excess liquidity and are confident that liquidity will remain available. Right now, the situation is the opposite,” he added.

OFZ bonds are ruble-denominated government bonds issued by the Russian Finance Ministry to finance state expenditure.

According to a Bloomberg report, Russia’s federal budget recorded a deficit of 5.7 trillion rubles, or approximately US$71.82 billion, in the first half of 2026, in line with higher-than-planned defence spending.

Russia’s war expenditure is estimated to exceed this year’s budget by 4 to 5 trillion rubles (US$50.4 billion to US$63 billion). This means the Finance Ministry needs to raise additional borrowing of 2 to 3 trillion rubles (US$25.2 billion to US$37.8 billion).

Yet, under the 2026 budget plan, the government had originally targeted only 4.4 trillion rubles, or about US$55.44 billion, in domestic borrowing.

However, the Finance Ministry suspended government bond auctions in July after OFZ prices fell and yields rose. As a result, banks holding the debt instruments recorded mark-to-market losses of around 200 billion rubles, or approximately US$2.52 billion.