Seen from Moscow, this data probably looks alarming: If fiscal expenses remain at their January levels throughout the remainder of the year, the NWF reserves could vanish in just three months. And even if they don’t — as is more likely — 2025 is probably the last year Moscow will be able to fully cover its fiscal deficit by tapping into those savings.
This begs the question, what would happen if Russia ran out of money to finance its budget shortfall?
With domestic banks choking on debt, a sovereign default could well trigger a full-blown financial crisis. If that happened, the Kremlin would be hard pressed to support its banking sector. With the NWF reserves running low, there would be no pot of money available to proceed with recapitalizations. The house of cards that the Russian economy has become would quickly start shaking.
Fiscally speaking, Russia is running out of time. The Kremlin has no plan D to finance its budget deficit, raising questions about its ability to fund the war. From this perspective, fiscal breathing room could well be what Putin is really looking for in his talks with the U.S., whether through sanctions relief (for instance, relaxing U.S. restrictions on Russia’s ability to place external debt) or a pause in the conflict (which would allow Moscow to replenish its coffers via a reduction in defense spending).
Back in September 2024, Kyrylo Budanov, Ukraine’s defense intelligence chief, predicted that mired in economic problems, Moscow would try to force an end to the war in 2025. These words may now be proving prescient.
The reason Putin might finally be ready to negotiate seems to be remarkably simple: He wants to avoid a humiliating bankruptcy.
