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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a fellow at the Carnegie Russia Eurasia Center in Berlin
The west looks for signs of Russian President Vladimir Putin’s weakness in the form of a high-profile split in the elite, or falling popularity ratings as the public mood sours. Yet while the regime is under real pressure, it remains resilient. The erosion that matters is easier to miss — perhaps even a little dull. Fiscal discipline slipped long ago, and now budgetary processes and parliamentary checks are also being quietly set aside.
It took Russia’s parliament just 72 hours this month to grant the finance ministry the power to spend more and borrow past the legal debt ceiling without formally rewriting the budget or obtaining parliamentary approval. It needs to react to a worsening environment “not every month or every quarter, but every day”, the ministry explained. In the fifth year of a costly war, even a rubber-stamp legislature has become an obstacle to be removed.
No wonder the Kremlin is in a hurry. By the end of May, the federal deficit had hit 6tn roubles ($83bn). That is 2.6 per cent of GDP, twice last year’s level and already past the Rbs3.8tn meant to cover the whole of 2026. The liquid portion of its National Welfare Fund (Russia’s sovereign wealth fund) has been run down to about Rbs3.4tn, a fraction of its prewar self. The central bank’s main benchmark interest rate stands at 14.25 per cent, and it has warned that more state borrowing will keep it there for longer. Value added tax has already been raised to help pay for the war.
These changes do not amount to printing money. Any new borrowing is, in effect, a short-term overdraft against cash already in the Russian treasury. The shift is subtler: a rule has quietly given way to discretion.
For almost two decades, fiscal restraint was one of the Kremlin’s proudest boasts — low debt, a balanced budget averaged over the period, a sovereign wealth fund and an internationally respected economics team. Those virtues were a large part of why the economy was able to weather the storm of sanctions. That discipline is now being unwound. A cornered autocracy is rewriting the fiscal rules as it goes, cutting parliament out of the loop, and will not admit to dangers it cannot control. It’s less dramatic than a palace coup, but this is what decline looks like.
And the bill is still mounting. In a letter to the government earlier this year, finance minister Anton Siluanov warned the military and security services might need an extra Rbs2tn this year. Much of that is related to the numbers of dead and wounded. An estimated 352,000 Russian soldiers have been killed since 2022, and each confirmed death triggers a Rbs14.2mn federal payout. For a wounded soldier it can be up to Rbs4mn. The death and injury toll is now affecting the budgetary process itself.
The same rationale, of avoiding formally budgeting for the costs of the war, runs through the whole system. Russian companies have installed steel cables over oil refineries to act as improvised air defences the state refuses to provide. The government will not even let them write off the cost against tax. When businesses asked the Kremlin to share the costs of air defence, the answer was no, with the reason that such spending was a “one-off”.
Companies have spent more than $1bn defending themselves against Ukrainian attacks. Nor is it just about the money. The state would sooner let companies arm themselves than officially classify Ukrainian drone strikes as a “military risk”. To concede that would shatter the fiction of a contained “special military operation” and the pretence that life goes on as normal.
But the bill for the war can only be postponed. Regions have had repayments of federal loans deferred from this year to 2030, freeing up funds for war-related expenses. Russian consumers are already paying through the inflation that the new borrowing feeds and through punitive interest rates.
This is what happens when the juggling act starts to fail. For four years, Putin managed to fund the war, keep inflation from spiralling and protect growth: a near-impossible feat he could only achieve thanks to large fiscal reserves and before the country’s sizeable tax base started to feel the effects.
Both buffers are now much depleted. The war is increasingly paid for by quietly invoicing the population and suspending the state’s own rules. A regime sustained this way is heading for a poorer, angrier country, a financial system out of control, and war funding it cannot count on. The end, when it comes, will spring from this kind of decline, the sort that begins long before anyone names it.
