Russia Faces Mounting Social Discontent Amidst Persistent Budget Deficit

Introduction

Reports from Ukraine's intelligence services suggest that the Russian Federation is experiencing escalating social problems, including delayed salaries and strikes, directly linked to a severe budget deficit. This assessment aligns with various economic indicators and official statistics pointing to growing financial pressures within the country.

Russia's Budgetary Pressures Intensify

The Russian federal budget has faced significant deficits in recent years. In 2023, the deficit reached 3.241 trillion rubles, equivalent to 1.9% of GDP. The projected deficit for 2024 was 0.3 trillion rubles, or approximately $4.3 billion. Combined, the federal budget deficit for 2022–2023 amounted to roughly 6.5 trillion rubles. Forecasts for the 2024–2026 period anticipate a deficit of around 4 trillion rubles. By the first eight months of 2025, Russia's budget deficit had already hit 1.9% of annual GDP, with projections indicating it could reach 2.6% of GDP by year-end.

A primary driver of these deficits is the substantial increase in military spending. In 2024, approximately 30% of total federal expenditures were allocated to defense and security, marking a nearly 70% increase from 2023. Defense spending for 2025 is projected to be 7.2% of GDP. While social spending is expected to rise by about 1 trillion rubles to 7.5 trillion rubles in 2024, expenditures on education and healthcare are set to remain at 2023 levels, effectively representing a real-term reduction. Oil and gas revenues, crucial for the budget, reportedly fell by about 20% year-on-year in the first eight months of 2025, contributing to the depletion of the sovereign wealth fund. The government plans to finance these shortfalls through oil and gas earnings, domestic bonds, and withdrawals from the National Welfare Fund (NWF).

Rising Social Tensions and Wage Arrears

Ukraine's Foreign Intelligence Service highlights that the budget shortfall is exacerbating social problems across Russia, including delayed salaries, strikes by public-sector workers, and increased utility costs. The intelligence report cites instances such as the Arkhangelsk Region, where the transport company OnegaAvtotrans accumulated approximately 2 million rubles ($24.88) in unpaid wages, leading to worker strikes. Complaints have also emerged regarding teacher shortages and low salaries in the education sector in Arkhangelsk. Furthermore, residents have faced unusually high heating charges and delays in the start of the heating season, contributing to heightened social tensions.

Official data from the Federal State Statistics Service (Rosstat) supports these claims, revealing a 43.5% increase in wage arrears in Russia in 2024 compared to 2023. This marks the first such increase since 2015. As of January 1, 2025, total unpaid wages amounted to 507.9 million rubles (approximately $5.7 million). By March 2025, official figures indicated a surge to 1.5 billion rubles ($18 million), with a trade union report estimating the actual total at 2.4 billion rubles ($30 million) in the first quarter of the year. The largest arrears were concentrated in the construction (53%), manufacturing (20.2%), and water supply sectors. The Federal Labor and Employment Service (Rostrud) received 18,400 complaints about wage delays in 2024, a 37.4% increase from the previous year. Causes cited for these debts include suspended payments for goods, reduced production, redirection of resources to loan repayments, and a lack of working capital. Companies in industrial areas, particularly those reliant on borrowed funds and government contracts, are especially vulnerable due to the Central Bank's high key interest rate, which stood at 20% as of July 2025.

Broader Economic Landscape and Outlook

Despite the challenges, the Russian economy has demonstrated a degree of resilience in the face of international sanctions. However, economic growth is projected to slow, with forecasts ranging from 1.5% in 2024 to 0.9% in 2026. Inflation remains a concern, with projections of 6.9% in 2024 and 5.9% in 2025. Sanctions have limited Russia's access to critical components and increased costs for industrial inputs. The Central Bank of Russia has raised interest rates to 18% by July 2024 and 21% by February 2025 in an effort to combat inflation.

The Kremlin has increasingly prioritized military spending, which has become a primary driver of economic activity. This shift towards a war economy has allowed the government to maintain military operations and social spending, despite mounting economic strains. While surveys cited by Ukrainian intelligence indicate that 92% of Russians acknowledge severe social inequality and 75% feel it personally, there are no widespread signs of protests or refusal to participate in the conflict. The government has also announced plans for substantial tax hikes in the 2026-2028 budget, including an increase in the Value Added Tax (VAT) from 20% to 22%, which could further impact the economy and potentially trigger public backlash.