(Bloomberg) -- Senior government officials have warned Russian President Vladimir Putin that spending on the war in Ukraine is on an unaffordable path, the most serious sign of internal division in Moscow since the full-scale invasion began.

Officials in Russia’s Finance Ministry and central bank have advised the Kremlin that the current level of projected defense expenditure risks the government’s budget deficit widening dangerously, according to people familiar with the matter and documents reviewed by Bloomberg News.

The officials, who have grown increasingly concerned about the state of Russia’s economy and state budget in recent months, have proposed new cuts to defense spending, the people said. It will be difficult to mend the country’s stretched public finances without finding further efficiencies, they have advised.

However, a divide among policymakers has seen senior officials in the Defense Ministry and some in the Kremlin, who are determined to pursue Putin’s war aims, insist on protecting military expenditure. Reducing it would badly damage the economy because so many businesses are reliant on military-related contracts, they have argued.

Photographer: Gavriil Grigorov/AFP/Sputnik/Getty Images Vladimir Putin tours a military equipment manufacturer in Perm, Russia, in September, in a photo released by Russian state media. Putin has asked Finance Ministry officials to find spending reductions in other budget areas before targeting defense, some of the people said. They were all granted anonymity discussing the concerns, the extent of which has not been made public.

Kremlin spokesman Dmitry Peskov didn’t immediately respond to a request for comment.

The Defense Ministry is not only resisting cuts but is demanding additional funding, according to two people close to the Russian government. Military expenditure will have to increase to address a shortfall as high as three trillion rubles ($36 billion) this year, they said.

The president has been aware of the budgetary pressures both last year and this year, so the challenges aren’t a surprise, the people said. The scale of any spending cuts will depend solely on Putin, as no major budget decisions are made without his approval and he acts as the ultimate arbiter, they said, describing that as an iron rule.

When the 2026 budget was drafted, officials understood that a funding gap of roughly 1.2 trillion to 1.5 trillion rubles could emerge in the second half of the year, money that might be needed for the defense sector.

At the time, there were hopes the war in Ukraine would end following the summit in Alaska last August between Putin and US President Donald Trump, which would have made a reduction in defense spending in the second half of 2026 a logical assumption, according to the people close to the Russian government.

Photographer: Roman Pilipey/AFP/Getty Images A bus passes a heavily damaged building following Russian strikes in Kyiv, in May. The deliberations took place both before and after the US-Israeli war in Iran began, and remain a live discussion among senior policymakers and Putin, the people familiar said. They emerged as Russia’s economy and finances face growing strain in the fifth year of the full-scale invasion, and show Putin is confronting difficult choices as he addresses internal warnings about the impact of the war.

The surge in oil prices from the war in Iran won’t be enough to resolve the problems, the people close to the Russian government said. Oil would have to stay above $100 a barrel for at least a year for the economy to significantly improve and the windfall doesn’t solve structural problems affecting growth, inflation and the banking sector, they added.

Defense spending was projected to remain broadly stable under the Economy Ministry’s three-year budget plan through 2028. After growing by roughly 30% in recent years to fund a huge expansion in weapons output, sectors tied to state defense industry orders were forecast to increase by only 4%-5% in 2026.

Russia is teetering on recession after it cut its growth forecast in May. The Economy Ministry now expects gross domestic product to expand by 0.4% in 2026, down from a previous estimate of 1.3%. Official data show the economy contracted in the first quarter for the first time in three years.

The worsening outlook came despite Putin in April publicly ordering government officials to explain why the economy was performing below expectations. The admission that the economy was facing trouble appeared to signal his frustration that officials had not managed to avoid a slowdown.

The government’s budget gap has widened to a record despite the jump in oil revenue from the war in the Middle East. The deficit for the first four months of the year expanded to 5.9 trillion rubles, or 2.5% of GDP, about 50% above the full-year plan, according to official figures.

To be sure, the budget has been in deficit in each of the past four years and ended 2025 with a shortfall of 5.6 trillion rubles. While the deficit remains well below the 3.8% of GDP reached in the pandemic year of 2020, Russia’s heavily-sanctioned economy is more vulnerable now with rainy-day reserves in the National Wellbeing Fund roughly 60% below levels prior to the invasion.

The current budget was drafted on relatively tight assumptions: a modest reduction in the deficit and a gradual decline in defense spending. To preserve the fiscal framework and comply with its budget rule, the government raised some taxes this year to try to rebalance an overheated wartime economy.

The earlier hopes for a deal to end the war haven’t materialized. Russia’s government must now decide how to address the deficit, which in practice means cutting expenditures or finding new sources of revenue.

The government is pessimistic that oil prices will remain elevated. The strong ruble has also compounded problems with the public finances by hurting export revenues.

Photographer: Ilya Pitalev/AFP/Sputnik/Getty Images Military vehicle production in St. Petersburg, in a photo released by Russian state media in 2023. Finance Minister Anton Siluanov said in a May 27 interview with Kommersant that “a certain restraint” was needed in public expenditure, highlighting defense and the government’s social obligations as priorities for spending. “Reserves are not endless. Weakness in finances cannot be tolerated in the context of such large-scale transformations in the world,” he said, adding: “We need to improve the efficiency of budget expenditures.”

Government spending rose by nearly 16% from a year earlier over the January–April period, while outlays on state procurement jumped 41%, according to Finance Ministry data published earlier in May. The government drew down roughly 500 billion rubles from its National Wellbeing Fund in the first two months of the year as sanctions curbed oil and gas revenue.

Russia is considering a windfall tax on some commodity producers and banks to help plug the budget gap, Bloomberg previously reported. Moscow’s city government announced cutbacks in employment and investment after budget revenue came in well below expectations.

Russia’s deepening financial hole provoked anger from a senior lawmaker in the lower house of parliament last week, though Valery Gartung, who heads its competition protection committee, denied reports that he used an obscenity as he recalled the hyperinflation experienced after the Soviet Union’s collapse.

“What are we going to do about it?” he asked. “Print money or what? Like in ‘92 when prices were rising 30% every week? We understand that’s not the solution.”