A Cautious Budget-2026: Stabilizing Borrowing

A Safe Deficit as a Signal of Confidence

In the current version of the 2026 budget draft presented by the government, Russia is expected to have expenditures around 44.1 trillion rubles and revenues of 40.3 trillion rubles. The deficit — that very 1.6% of GDP planned by the government. Moreover, by all international standards, the deficit is even below recommended international norms, as experts point out. In a conversation with "Аргумент Медиа" Associate Professor at the Department of Public Finance at the Financial Faculty of the Financial University under the Government of the Russian Federation Светлана Демидова emphasizes:

"The deficit size of 1.6% can indeed be assessed as a relatively safe level, especially against the backdrop of the Maastricht criterion for EU countries of 3%. Nevertheless, statements about deficit control indicate the authorities' commitment to normalizing fiscal policy".

At the same time, financier Александр Кузнецов told "Аргумент Медиа" that the Finance Ministry's current task is to reduce the budget deficit, strengthen resilience to consequences from possible sanctions, and increase business economic activity.

"Together with easing monetary policy, this will strengthen financial sovereignty", the expert emphasized.

Predictable budget deficit growth and the associated increase in external borrowing are especially critical for Russia right now, as they allow maintaining a balance between the need to finance key state objectives and prevent strengthening inflationary processes, which is particularly relevant based on the 2025 example.

Borrowing Without Overheating. The 2025 Experience

Initially, the 2025 budget planned a deficit at 0.5% of GDP, or about 1.2 trillion rubles. However, during the year it grew almost fivefold — to 2.6% of GDP (5.7 trillion rubles), due to reduced revenues from oil and gas receipts and increased spending on social measures and defense industry. The deficit growth in 2025 was accompanied by an increase in net borrowing of 2.2 trillion rubles (to 5.4 trillion rubles total). Financial markets expert Ольга Гогаладзе told "Аргумент Медиа":

"The deficit increased both due to rising expenditures and declining revenues. In particular, the problem is created by a strong ruble coupled with low oil prices. At the same time, the budget needs money to ensure national security".

Any unplanned increase in spending leads both to an expansion of the money supply, which according to Central Bank data in August 2025 exceeded 121 trillion rubles, showing annual growth of about 14.4%, and is generally viewed by the regulator as a pro-inflationary factor. Because of this, the Central Bank maintains the key rate at a higher level than it could: the Central Bank's forecast for the average rate in 2025 is around 18.8%. This, in turn, impacts both consumer activity of the population (which begins to save more) and business, forced to optimize their own expenses rather than expand. And every trillion of new borrowing pushes up government bond yields and limits maneuverability. That's why stabilizing the volume of borrowing after 2025 becomes a factor not only of fiscal but also monetary stability.

Understanding that in the long term such an approach could harm the economy as a whole, the government decided to adjust the budget in advance through fiscal methods. They are more predictable, and most importantly — together they don't produce such a powerful pro-inflationary effect. According to Светлана Демидова, carefully reducing the deficit from the current 2.6% in 2025 to 1.6% (almost by a third) with adequate tax increases demonstrates responsible fiscal policy aimed at preserving sovereignty in debt policy.

"In conditions of limited reserves, prioritizing measures to increase revenues (for example, through adjusting taxation) over sharply increasing debt is a more sustainable and predictable strategy in the medium term. The low level of public debt (less than 20% of GDP) confirms compliance with budget rules and provides a margin of safety", summarized the Financial University associate professor.

The same position was expressed by Ольга Гогаладзе:

"Within all external conditions, the government is behaving quite disciplined. It would be very good to actually see a zero structural deficit, but for that it's necessary to strictly optimize budget expenditures, which is not a simple task".

Budget Predictability = Lower Rates

Back in September, Central Bank head Elvira Nabiullina emphasized that the current forecast for the key rate in 2026 is 12-13%, but it depends on the budget. Such a level is already "borderline" (rather than prohibitive) for many industries, which could positively affect both lending and population activity in general.

And the regulator's actions are directly linked to how close inflation is to returning to the target (of 4%). For the Central Bank, the budget is not just statistics. If the market stops being pumped with new OFZ issues, money supply and demand balance out. This reduces inflationary risks and allows the Central Bank to pursue a softer policy without the threat of overheating the economy. Therefore, one of the key tasks of the Russian Government in preparing the budget was to navigate between "Scylla and Charybdis": that is, on one hand, ensure all social obligations, and on the other hand not allow spending to balloon, since in that case there was a risk of inflation reversal and consequently tightening of monetary policy. Therefore, financial authorities chose a proportional approach: increasing taxes while returning borrowing to a predictable level. And in the case of the key rate, it's worth understanding another important factor — servicing interest expenses on public debt, which covers the budget deficit. In 2025, against the backdrop of a high key rate, these expenses already grew by one and a half times and exceeded 1.5 trillion rubles in the first half alone. And if inflation stabilizes, the Central Bank will lower the rate, and consequently payments on these borrowings will decrease, freeing up funds. Moreover, in conversation with "Аргумент Медиа" economist Ольга Гогаладзе noted that lowering the rate will also affect budget expenditures on subsidized housing programs.

"This will reduce spending on servicing mortgage government programs, since it's from the budget that the difference between market and subsidized mortgage rates is compensated", Gogaladze concluded.

Moreover, experts are already noting that the Central Bank may continue lowering the rate this year. According to Financial University financial faculty associate professor Светлана Демидова, at the next meeting it may be reduced by 1 percentage point (note - to 16%).

"Lowering the key rate is a positive factor for the budget. This will directly reduce the cost of servicing public debt, freeing up funds for other expenditure items. Business will have expanded opportunities to attract borrowed funds", the economist emphasized in conversation with "Аргумент Медиа".

Financier Александр Кузнецов is confident that the effect of changing the rate is reflected only after 2-4 quarters.

"Lowering the rate will lead to greater revenues and receipts to the treasury due to increased business activity and growth in spending among the population", Kuznetsov told "Аргумент Медиа".

Financial expert Алексей Кричевский is also confident that one shouldn't count on a short-term effect for the budget from lowering the rate.

"The Finance Ministry will have to borrow anyway. And until the second half, most likely, the rate won't be corrected significantly — probably only to 15-16%. Under optimistic scenarios, when it reaches 10-12%, then it will become easier for financial authorities, and then it will be possible to do something with offers with additional payments to those OFZ holders who bought them with yields around 20% — these are issues that were issued when the rate was 21%. Then we can work with that" Krichevsky told "Аргумент Медиа".

In any case, lowering the key rate is not just budget savings. Cheap borrowing means resumption of the investment cycle: it's easier for business to finance projects, and for households — loans and mortgages. As a result, "fiscal caution" transforms into economic growth.

That's precisely why the current complex of fiscal and economic measures will allow Russia not only to fulfill all current obligations, but also to have a margin of safety (in the form of public debt), and potentially in the form of reduced costs for servicing that very debt. And here the government plays first fiddle, while the Central Bank maintains the rhythm. And the synchronicity of their actions becomes that very new form of "economic sovereignty" — when stability is built not on mobilization, but on strategic predictability. Especially since public debt overall will remain at 18–19% of GDP, which is 2–2.5 times below "sustainability thresholds" by international criteria.