Russia is preparing to significantly increase military spending for 2027 despite mounting fiscal pressures, according to a draft budget published this week. The proposed budget reveals that Moscow plans to allocate over $200 billion to defense—more than a one-quarter increase from initial projections for 2026—and that this would account for more than one-third of all federal expenditures next year.

The draft budget also outlines cuts to social programs, including a 7 percent reduction in spending on child and family benefits and a nearly 7 percent drop in healthcare funding, affecting cancer treatment infrastructure and other services. Education spending is set to decline by 6 percent, impacting projects such as the construction of new university campuses. These adjustments come as Russia’s government prepares for an expanded budget deficit exceeding $60 billion in 2027, driven by the escalating costs of the war in Ukraine.

Speaking at the opening session of the State Duma on Wednesday, President Vladimir V. Putin conveyed confidence in Russia’s economic resilience. He dismissed the need to seek financial assistance abroad, emphasizing that Russia’s economy and financial system were performing well without external support. “Russia cannot go around the world, humiliatingly begging for handouts with an outstretched hand,” he said.

However, the fiscal details indicate a more strained financial situation. The Kremlin expects to increase domestic borrowing substantially, as Western sanctions have restricted access to international capital markets. Debt-servicing expenses are projected to more than double compared to prewar levels, surpassing combined government spending on health, education, and housing. In response, the government plans to raise taxes further, including on bank deposit interest, dividends, and real estate transactions. Officials also proposed a new windfall tax targeting mining companies, aiming to generate an additional $4.6 billion in revenue.

The intensification of military expenditure follows more than four years of conflict between Russia and Ukraine, a war characterized by measures designed to undermine each side’s economy. Ukraine has conducted strikes on Russian fuel refineries and e-commerce operations, disrupting supply chains and exacerbating domestic fuel shortages. Meanwhile, Russia has inflicted extensive damage on Ukrainian infrastructure, targeting ports, warehouses, data centers, and cities such as Kyiv with persistent air raids, hampering economic activity in Ukraine.

Ukraine faces its own severe financial challenges amid the ongoing conflict. Prime Minister Serhiy Koretsky stated on Wednesday that the government has entered a phase of maximum austerity and postponed all nonessential spending. He also highlighted a $27 billion shortfall in Ukraine’s 2024 defense budget. While the European Union finalized a $100 billion loan to Ukraine earlier this year, Kyiv has indicated that additional funding will be necessary to sustain its defense efforts as the war continues.