April is drawing to a close, marking one of the Kremlin’s most financially successful months in recent years. Although official budget figures have yet to be released, oil and gas revenues for the month are likely to reach 1.05−1.1 trillion rubles. There is even a chance that, for the first time since September 2025, the federal budget will be balanced.
This positive momentum has a good chance of continuing in the coming months. Hopes for a swift resolution of the conflict in the Persian Gulf are quickly fading. Oil prices are holding steadily above $ 100 per barrel, and some oil service companies are already making plans based on the assumption that the Strait of Hormuz will not reopen until the second half of the year. As a result, the 2026 budget is likely to be executed in line with—or very close to—the original parameters approved by the State Duma last autumn (as forecast earlier this year).
The significant improvement in external conditions has already prompted revisions to Russia’s economic growth forecasts. Despite a 1.5% contraction in GDP in the first quarter, the IMF has quickly adjusted its full-year projection from +0.8% to +1.1% in its spring outlook. Other financial institutions, think tanks, and government agencies have also signaled their readiness to revise their forecasts upward.
However, while there are solid grounds for optimism regarding public finances, caution is warranted when extending this optimism to the Russian economy as a whole. Unlike the early years of the full-scale war, Russia is now entering a period in which the state of the federal budget will no longer be the dominant factor shaping economic development.
Over the past two decades, the Russian economy—despite significant «statization”—retained a market-oriented and relatively liberal character. Federal budget revenues accounted for just 16−17% of GDP, with up to half of all tax receipts coming from the fifty largest companies, many of which were state-controlled. The economy remained relatively open to capital, labor, and technology, enabling noticeable modernization and sustaining positive business sentiment. The primary driver of growth was the rapid expansion of the services sector, the emergence of new segments, and efficiency gains from digitalization. Budgetary investment played a visible role but was never the decisive factor.
Over the past two decades, the Russian economy—despite significant «statization”—retained a market-oriented and relatively liberal character. Federal budget revenues accounted for just 16−17% of GDP, with up to half of all tax receipts coming from the fifty largest companies, many of which were state-controlled. The economy remained relatively open to capital, labor, and technology, enabling noticeable modernization and sustaining positive business sentiment. The primary driver of growth was the rapid expansion of the services sector, the emergence of new segments, and efficiency gains from digitalization. Budgetary investment played a visible role but was never the decisive factor.
The situation changed dramatically with the onset of the full-scale war. Against the backdrop of severed investment ties with Western partners, along with sanctions and restrictions, the budget became the key instrument for sustaining growth. In 2025, federal expenditures alone surged by 18.15 trillion rubles (+73.3% compared to 2021 levels), while the cumulative deficit for 2022−2025 exceeded 14.55 trillion rubles. The government stimulated bank lending to enterprises (primarily the defense sector) and households (through subsidized mortgage programs)—the total volume of such injections approached 17 trillion rubles over those years. It was clear, however, that this model could not be sustained indefinitely.
By 2024, the Kremlin faced a critical choice about the country’s future path. One option was to curb spending and the deficit, accept more moderate growth rates, and refrain from further increases in military expenditures. Another was to «capitalize» on rising household incomes by improving the business climate, cutting taxes, and expanding economic freedoms—this approach could have delivered higher growth rates even amid the war. A third was to sharply increase the tax burden and channel the additional funds toward achieving military victory, in the hope of a subsequent «return to normality» (this logic apparently explains Putin’s remark about the «temporary» nature of the VAT increase late last year).
In the end, the third option was chosen, despite serious doubts about its effectiveness. Experience from both 2000−2003 and the early years of the war showed that reducing the tax and regulatory burden—not increasing it—accelerates growth.
The economic policy of 2025−2026 has demonstrated the limitations of budgetary stimulus. Higher taxes and levies have failed to boost revenues—a fact now confirmed by trends across nearly every category, from the recycling fee to corporate profit tax. Instead, they have significantly eroded business confidence. Small and medium-sized enterprise activity has declined: 233,000 companies were closed last year, and self-employed individuals are rapidly moving into the shadows. Numerous prohibitions and restrictions have also produced strongly negative effects—from tighter migration policies to the regulation of certain service sectors and recurrent internet shutdowns that disrupt entire industries. The consequences of large-scale property redistribution should not be overlooked either.
At the same time, against the backdrop of declining oil and gas revenues and a record budget deficit in the first quarter of 2026, the authorities began tightening the screws even further. As a result, all key indicators of business confidence and consumer sentiment have fallen to multi-year lows.
The central question now is whether the unexpected surge in budget revenues can reverse this negative trend. The answer, however, is clear: no.
In recent times, the Russian economy has developed what might be called numerous «holes”—it increasingly resembles a dried-out sponge. The cumulative budget deficit over the past six months has reached 6.44 trillion rubles (or about 3% of 2025 GDP). According to the latest data, overdue payments in the economy exceed 8.2 trillion rubles. Corporate debt to banks remains above 100 trillion rubles. All this is occurring against a backdrop of record-high household deposits in banks and stagnating fixed-capital investment.
Many experts complain about prohibitively high borrowing costs and note that the Central Bank leadership has recently expressed understandable skepticism about prospects for cutting the key rate. Yet this is only a secondary factor. The main reason for the peculiar nature of the current moment lies in the imbalances that have accumulated in the financial sector over the past 18−24 months.
If the optimistic forecast of sustained export revenues and oil and gas income materializes, the incoming funds will not necessarily translate into investment—or even additional demand. The Finance Ministry is unlikely to significantly ramp up spending until the overall deficit approaches planned levels (requiring at least another 2 trillion rubles by the end of the first half). The corporate sector will likely use part of the funds to repay loans—a step President Putin has repeatedly urged. Tens of thousands of companies will prefer to clear debts to suppliers. Investment will remain a lower priority: the Ministry of Economic Development has already projected a 0.5% decline this year, following a 2.3% drop last year.
Households, which have recently been cutting consumption and switching to cheaper goods, are unlikely to change their behavior abruptly. Any extra money will more likely go toward debt repayment or bank deposits. In an environment of uncertainty, banks will place these funds in short-term deposits with the Central Bank or invest in government bonds. The circle will close.
Thus, despite the easing of pressure on public finances, the real sector will receive no meaningful stimulus for development. It is telling that, in recent days, Elvira Nabiullina stated that it is still premature to speak of an acceleration in the Russian economy this year.
In other words, the «dry sponge» of Russian finances must first become «soaked» before it can once again be used to «wipe the table.» This will take time, money, and the restoration of trust among businesses and citizens. Consumers will need to believe in the sustainability of positive changes before they begin spending more freely. Yet the authorities are hindering this by introducing new fees on virtually everything (recent innovations target purchases on marketplaces and a large share of electronics), raising taxes, and objectively restricting spending (for example, through internet shutdowns). Companies will need time for a portion of the «oil windfall» to reach them—resources they will primarily use to close credit obligations (and in some cases to prepare for upcoming windfall profit taxes) and resolve mutual non-payments. The state will need to reduce the federal budget deficit, cover shortfalls in regional budget financing, stabilize the most vulnerable companies (such as Russian Railways) and entire sectors (for instance, coal).
All told, it will take at least six months for the wave of incoming funds to be distributed among recipients, flow through payment chains, restore health to public and corporate finances, and—provided the Kremlin does not introduce new measures to pressure the economy during this period—begin to shift business and consumer sentiment. If the situation in the Gulf does not improve and conditions in Russia do not deteriorate, the first prerequisites for renewed growth could emerge by late summer or early autumn.
Even in this scenario, however, one should not overestimate the Russian economy’s prospects for development. Above all, because the headline growth figure masks divergent trends between the civilian and military sectors (the former has been contracting since autumn 2025). Even if the budget begins to increase spending, it will primarily be directed toward the war effort (a slowdown in army recruitment is already noticeable, which will require another round of pay increases for service members).
Moreover, the prospect of super-high oil prices persisting for even six months looks unlikely. Even without a political or military resolution to the Iranian conflict, the global economy is poised to slow down—early signals are already emerging. This will remove the favorable conditions currently enjoyed by Russian exporters.
Finally, there is a risk that the influx of additional budget funds will only increase the Kremlin’s self-assurance and provoke further misguided decisions.
By the summer of 2026, the Russian economy had approached a state that, without a sharp jump in oil prices, threatened a serious crisis. The optimal way out could have been a combination of a significant ruble devaluation (by 25−40%), liberalization of economic regulation, and a refusal to further increase taxes. Such a scenario would have led to a 10−12% decline in real household incomes but would have created conditions for subsequent economic acceleration.
Events around Iran have removed these options from the agenda. The ruble, which weakened in early March, has fully recovered. The crackdown on business and internet restrictions are only intensifying, while the fight against inflation is keeping lending rates high. As a result, both entrepreneurs and citizens continue to save, refraining from expanding business and consumption.
Thus, the «soaked» «sponge» of the Russian economy, thanks to temporary oil revenues, will most likely begin to dry out again in the near term. The earlier forecast of a prolonged period of stagnation remains in force.
