Defense budget increase announced

The Russian government plans to allocate 35% of its 2027 budget to national defense, which funds the majority of the war in Ukraine. In total, defense spending is expected to reach 17,100 billion roubles (approximately 190 billion euros), which is three times the French military budget for 2027 (63.4 billion euros). It is not certain that the Kremlin can sustainably finance such a level of spending.

Debt financing and budget deficit

Part of these expenses will be financed by debt: the Ministry of Finance plans to issue 7,700 billion roubles (85 billion euros) in bonds, compared to 5,400 billion (60 billion euros) in the budget from last year. Despite a rise in VAT in January 2026 and the creation of new taxes, these expenses are expected to be accompanied by a higher deficit than anticipated: 5,500 billion roubles (60 billion euros, 2.2% of GDP) in 2027, compared to 3,200 billion (35 billion euros) in the budget from last year.

Struggles to attract debt buyers

At the same time, Moscow is increasingly struggling to find buyers for its debt. The Ministry of Finance had to declare bond auctions unsuccessful in July and September due to a lack of offers at an acceptable price. In the meantime, emissions have been suspended for several weeks. In order to attract buyers, the Russian government must offer yields of nearly 17%: on October 14, it borrowed at 16.77%, which is its highest rate since February 2025. The demand is increasingly relying on large banks, which purchased 84% of a 1,000 billion rouble issuance on September 2, after having borrowed an amount nearly equivalent from the Central Bank the previous day.

Ukrainian strikes and economic impact

The Ukrainian strategy of medium- and long-range strikes on Russia is increasing pressure on the Kremlin. On September 1, Putin stated that Ukrainian strikes in the Black Sea and Azov Sea targeting ships and energy infrastructure had caused damage equivalent to about 1% of GDP Russian, or approximately 23 billion euros. The strikes by Ukraine have continued and have notably targeted Yandex data centers, which support the Russian civilian economy (online search, taxis, deliveries, messaging services, cloud services, etc.).

Impact on Russian supercomputers

Some of these data centers house some of the most powerful supercomputers in the country according to TOP500, such as Galouchkine, hosted in the Vladimir data center. The company claims that these supercomputers, which allow Yandex's AI to run, used throughout the company's software and applications, have not been damaged by the strikes. They have, however, been "transferred to new sites," according to Yandex's press service.

Unpredictability of war costs

The fragility of the Russian budget also stems from the unpredictability inherent in war: expenditures to strengthen anti-drone capabilities, replace equipment, or pay enlistment bonuses to soldiers will depend on the evolution of balances on the front.