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Russia’s economy is grappling with severe challenges amid its war in Ukraine, as stagflation—characterized by rising inflation and stagnant growth—takes hold. A significant issue is the surge in corporate borrowing, driven by a covert, off-budget financing scheme where the Kremlin pressures banks to provide preferential loans to war-related businesses. This has resulted in a 71% increase in corporate debt, reaching $415 billion, further fueling inflation and interest rates.
The Russian Central Bank (CBR) is struggling to rein in inflation, officially reported at 9.5%, though independent analyses suggest it may be considerably higher. Rising interest rates are exacerbating financial pressures on companies, heightening economic instability.
Meanwhile, Russia’s National Wealth Fund is rapidly depleting, with liquid reserves dropping from $117 billion in 2021 to $31 billion by November 2024. At this rate, reserves are expected to run out by fall 2025, potentially forcing significant budget cuts. Compounding these issues, Western sanctions have curtailed Russia's ability to secure international loans, further straining its financial system.
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