Kathmandu. Russia’s economy is currently facing a serious crisis.
In the first seven months of 2025, Russia’s federal budget deficit has far exceeded the annual target. This has forced the government to take tough economic decisions. The crisis has been triggered by the Russia-Ukraine war, falling oil and gas revenues, and a sharp increase in defense spending.
Causes of the budget deficit and Putin’s economic strategy
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In the first seven months of 2025, Russia’s budget deficit reached about 4.9 trillion rubles ($61.4 billion). That’s more than the annual target. This is mainly due to a more than 20 percent increase in defense spending and a decrease in energy revenues. To curb this, President Vladimir Putin is considering raising taxes on the wealthy, especially on luxury goods and dividends.
In addition, the Russian government is studying the possibility of increasing the value added tax (VAT) from 20 percent to 22 percent. The move will be crucial to reducing the 2026 budget deficit. That’s because VAT accounted for 37 percent of federal revenue in 2024. These policy changes show that Russia is focused on addressing the economic pressures of the war and increasing internal revenues.
Indirect Impact on Nepal: New Challenges in Diplomacy
Russia’s economic crisis and policy focused on internal revenue may also have an indirect impact on Nepal-Russia relations.
Possibility of less cooperation: If Russia prioritizes its defense and internal stability, the flow of foreign aid or investment to developing countries like Nepal may decrease.
New Model in Relations: Russia can maintain its global influence by maintaining its presence in South Asia, especially in Nepal. However, this cooperation can now focus on a strategic partnership based on mutual benefit rather than on aid.
Technology Use: Nepal could seek to benefit from Russia’s military and technical expertise. But Moscow’s tight budget and Western sanctions could put some limits.
Nepal needs to keep in mind the changing economic realities of Russia as it diversifies its diplomacy and international partnerships. Nepal’s policymakers need to closely monitor these geopolitical developments and adjust their diplomatic and economic strategies accordingly.
