The Russian president stated that the government plans to cut defense expenditures, which have already reached record levels unseen since the days of the USSR. Consequently, military spending now accounts for 6.3% of GDP, which Putin considers excessive.
However, Putin explained that the slowdown is a deliberate effort to control inflation. At the same time, the Kremlin is implementing tax reforms for small and medium-sized businesses to boost revenue, as the budget has been strained by collapsing raw material revenues and the depletion of the National Welfare Fund.
Notably, in June seaborne exports of Russian oil products dropped to their lowest level since October 2024, due to ongoing repairs at oil refineries damaged by Ukrainian drones earlier in the year, as well as efforts by Russian authorities to stockpile fuel ahead of peak domestic demand.
The Ukrainian Ministry of Economy highlighted that due to Russian sanctions, in the first five months of 2025 Russia’s budget deficit reached 90% of the annual target, hydrocarbon export revenues declined by 14% ($90B in oil exports lost; activity of 343 shadow fleet vessels nearly halved in June), and the GDP for the first quarter decreased by 0.6% compared to the previous quarter.