Russia borrows over $11 billion from banks in a single day to plug its growing budget deficit

The outlet stated that during an auction on September 2, Russia's Ministry of Finance fully sold out an issue of floating-rate federal loan bonds maturing in 2042. Demand for the securities reached 1.424 trillion rubles ($16.4 billion), outstripping the available supply by 1.4 times.

Analysts at Vector Capital believe the Russian Finance Ministry likely pre-negotiated the sale with banks. Large, primarily state-owned credit institutions typically serve as the main buyers for these floating-rate bonds.

This setup allows the Russian government to secure funding beyond direct bank cash. In past auctions, the sale of state securities to banks relied on central bank backing, with the regulator financing the commercial banks through repo transactions while accepting the newly issued bonds as collateral.

Under this scheme, the Central Bank of Russia becomes the de facto source for funding the federal budget deficit through a hidden currency issuance loop. The circular pipeline operates as follows: the Ministry of Finance issues debt to commercial banks, which then turn around and pledge those very bonds to the Central Bank as collateral in exchange for fresh liquidity via repo transactions.

Russian authorities typically resort to this financing strategy when the federal budget situation deteriorates. The Ministry of Finance previously used these floating-rate bonds to borrow 1.7 trillion rubles ($19.6 billion) in November 2025 and 2 trillion rubles ($23.1 billion) in December 2024.

Meanwhile, the Russian Ministry of Finance is finding it increasingly difficult to sell regular fixed-rate bonds. On July 20, the ministry suspended its government debt auctions altogether following four consecutive failed placements. Two auctions were canceled outright, another was declared invalid, and the sole successful sale brought in a mere 9 billion rubles ($104 million) – a tiny fraction of the government's 1.5 trillion ruble ($17.3 billion) quarterly borrowing target.

In a single day, Russia fulfilled approximately two-thirds of its quarterly borrowing plan, yet the country still faces a massive fiscal shortfall. Analysts at Raiffeisenbank estimated that Moscow may need to raise an additional 3 trillion rubles ($34.6 billion) in new borrowing by the end of the year just to cover its widening federal budget deficit.

Russia's budget deficit continues to worsen, with the federal treasury deficit reaching 6.45 trillion rubles ($74.4 billion) as of early August. According to an analysis by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), that fiscal gap could swell to 7 trillion rubles ($80.7 billion) by the end of the year.

The total debt of Russian banks to the Central Bank reached 6.16 trillion rubles ($71.0 billion) as of September 2, highlighting the banking sector's growing reliance on state support. Since the end of last year, regulators have pumped over 2 trillion rubles ($23.1 billion) in emergency liquidity into the banking system to keep credit institutions afloat.

PSB Bank analyst Dmitry Gritskevich noted that the new floating-rate bond allows banks to use their newly acquired securities as highly liquid assets to secure fresh financing from the Central Bank.

Russian authorities originally planned to slash the federal budget deficit roughly in half by the end of the year – aiming to bring it down to 3.79 trillion rubles ($42.7 billion) from the 5.7 trillion rubles ($65.7 billion) recorded previously. To fund this target, Moscow implemented aggressive tax hikes, including increasing the Value-Added Tax (VAT) and raising tax rates on small businesses.

However, Russia's budget deficit exceeded the entire planned amount for the year within the first quarter alone. According to sources cited by Bloomberg, the Russian government is considering the possibility that the fiscal gap could swell to an unprecedented 9 trillion rubles ($103.7 billion) by the end of the year.

Against this backdrop, the Russian government has already begun slashing spending. According to sources cited by Bloomberg, Moscow has cut funding for civilian budget items by approximately one-third since April. Furthermore, state agencies have been ordered to prepare for a 15% reduction in staff to cope with the mounting fiscal strain.

Thus, Moscow is simultaneously increasing domestic borrowing and relying more heavily on the commercial banking system and the Central Bank to keep its economy afloat. The new trillion-ruble loan demonstrates that Russia’s massive budget deficit can no longer be covered through current government revenues alone.