Russia's hidden financial crisis: military spending pushing economy to the brink
Amidst an aura of apparent stability lies a significant financial crisis in the Russian economy, largely driven by massive military expenditures, Italian newspaper Corriere della Sera reports.
As the war with Ukraine continues, along with an increase in the military budget to 8% of GDP, Russia's official state deficit in 2024 hit just 1.9%. However, the newspaper notes this figure conceals a sharp rise in corporate debt, fuelled through commercial banks under Kremlin directives.
Since the beginning of the war, Russia's corporate debt has climbed 71%, reaching $415 billion, about one-fifth of the nation's GDP. Over half of this debt is directly linked to the military economy and loans issued under government pressure.
A crucial tool in cloaked financing involves coercing Russian banks to provide low-interest loans to military-industrial enterprises. Economist Craig Kennedy's research suggests nearly half of these companies are essentially "zombies," unable to survive without state support.
The crisis deepens with actions by Elvira Nabiullina, Chair of the Bank of Russia, who raised the key rate to 21% in an attempt to curb inflation. This move sparked outrage among leaders of defense giants like Sergei Chemezov (Rostec) and Alexey Mordashov (Severstal), who reportedly complained directly to Putin.
Italian analysts highlight the Kremlin's dilemma. Continuing the war demands increasing financial input, mounting pressure on an already overextended banking system. Meanwhile, ending the conflict threatens widespread bankruptcies of enterprises dependent entirely on military orders.
Adding to the concern, Putin's advisor Nikolai Patrushev made a chilling statement that Ukraine "could cease to exist within a year." Corriere della Sera) interprets this as an indirect admission that Russia cannot maintain the war without complete economic and financial collapse.
Experts warn that the Russian economy is teetering on the brink of disaster, with the delicate balance between banks and businesses under threat and debt burdens escalating. The Italian publication emphasizes that with each passing month, Russia's financial future becomes increasingly insecure and harder to conceal from the public.