How businesses, investors and currency buyers are affected
For an entrepreneur in Russia this means more expensive government contracts and greater competition for resources. When the government increases advance payments to the defence industry, companies receive money faster, but at the same time demand for materials and components rises, putting pressure on production costs.
For investors and currency buyers this is a higher-risk area. Rising military spending to 17 trillion rubles or $199 billion pushes the government towards greater domestic borrowing and sales of gold, which can weaken the ruble and impact inflation.
Mechanics of rising spending and sources of financing
According to people close to the government, defence spending in 2026 could reach 17 trillion rubles, roughly 40 percent higher than the initial plan. This amount is effectively the same as what is budgeted for 2027, where the budget lists 17.1 trillion rubles.
The rise in spending has already changed the state’s financial calculations. The projected deficit for 2026 has exceeded 7 trillion rubles, whereas it was originally planned at 3.8 trillion rubles. The authorities are covering the extra costs by increasing domestic borrowings and through sales of gold, which burdens the domestic capital market.
Impact on the budget, markets and the reasons behind the political move
Bloomberg Economics believes that the authorities are effectively embedding a prolonged war into the budget. Even these estimates may be understated, since higher production costs for military equipment and continued hostilities could further raise spending next year.
The political trigger for the increase in spending was the failed negotiations to end the war, which forced those in power to prepare for a longer period of high expenditure. According to Bloomberg Economics’ assessment, this could keep the budget deficit around 3 percent of GDP instead of the 2 percent planned by the Ministry of Finance.
Why this matters for Ukraine and regional markets
Higher spending in Russia has a direct impact on regional finances. A weaker ruble and a growing deficit can change prices for energy and raw materials, which is important for Ukrainian exports and imports of energy resources.
In addition, greater demand for domestic borrowing in Russia can increase competition for capital in neighbouring markets, while political uncertainty will sustain volatility in exchange rates and raise the cost of risk insurance for businesses and investors.
Key details to remember
Spending is expected to fall only slightly, to 16.6 trillion rubles in 2028 and to 16.3 trillion rubles in 2029, which points to long-term planning of military expenditures. The additional burden on the budget has already led to a recalculation of macro indicators and an increase in the deficit.
This is reported in a Bloomberg article and in assessments by Bloomberg Economics, which note risks to public finances if the cost of military production rises further.
