Moscow is preparing to raise taxes and cut spending as it tries to maintain high defence expenditure with Russia’s economy creaking under the weight of financing the more than three-year war in Ukraine, officials and economists say.

President Vladimir Putin has rejected suggestions that the war is killing Russia’s economy, but the budget deficit is widening as spending mounts, while revenue from oil and gas is declining under pressure from Western sanctions.

Highly anticipated talks between Putin and his US counterpart, Donald Trump, in Alaska last week did not yield a ceasefire, giving Moscow, which would prefer to move straight to a peace settlement, a strategic boost, but a spending headache.

Russia’s economy is cooling, with some officials warning of recession risks, and though interest rates are starting to come down from 20-year highs, its budget deficit has widened to 4.9 trillion roubles ($61 billion), suggesting Russia will struggle to fulfil its current obligations and keep financing the war at its current pace.

“Given the more pessimistic estimates of economic indicators and the decline in oil and gas revenues, we will need to urgently start fiscal consolidation,” Anatoly Artamonov, head of the upper house of parliament’s budget committee, said in late July.

Budget spending has almost doubled in nominal terms since Russia invaded Ukraine in February 2022, a significant fiscal injection that fuelled inflation and forced the central bank to hike rates to as high as 21%, sharply raising corporate borrowing costs.

Combined spending of 17 trillion roubles on defence and national security in 2025 is at its highest since the Cold War, accounting for 41% of total spending and making the defence sector the primary driver of economic growth as civilian output declines.

Putin said in June that Russia plans to reduce military spending, but for now, officials still expect an increase.

“We cannot cut spending on national defence and … in all likelihood, we will have to increase it,” Artamonov said.