By MRA Digital | June 28, 2025
Russia is facing financial issues as the government is dependent on off budget military expenses which are provided state-controlled banks, and the expenses keep increasing. If these defense companies continue to be provided with these “forced loans”, the corporate debt will keep rising higher and higher and be damaging to the banks. According to official statistics the growth of GDP is just 4.3% in 2024 however, it’s possible it may be when lower than what she is reported. Many believe that inflation rise is higher than reported and interest rates 21% making things more difficult for productive sectors to function while trying to keep ruble exchange rate up.
The Debt Bubble
According to Analysts, they estimate that corporate debt has reached over 70% due to about 50% of miliary expenses in Russia are being funded by off-budget loans. Due to this, Russia is vulnerable to 3 main risks: increasing credit to unprofitable, politically connected war firms, inflation rates rise and increase in non-performing loans. According to banks Auch VTB though, the interest rates had led to high profits Though banks like VTB report strong profits due to high interest rates, however reports show rise in defaults and liquidity issues, creating more pressure on the financial system.
The Impact on The Economy
So far Russia central bank has taken some measures that are only applicable such stabilize ruble rate such as capital controls and raised interest rates. But this will only work short term, and a proper solution is needed to fix the crisis. The economic foundation is crumbling as in just one urea the National Wealth Fund took a rapid decrease starting $117 billion to now $31 billion. It is not long before a major crisis in the banking system may occur due to combination of problems such as defaults, liquidity shortages, and a lack of public trust.
The Russian Government is in Denial and Economic Predictions
In order to save face, The Kremlin underexaggerate the potential risks and Russian President Putin deny any future downfall of the economy. Even so IMF state the possibility of the growth decreasing to 1.5% in 2025 and to huts 1% in 2026 with the rise inflation and debt. Many experts have pointed out how Russia current plans to fix the situation cannot be sustained long term.
How Could Russia Resolve the Crisis?
To solve the crisis, economists recommend its nest to be transparent about off budget loans for military purposes, selective support to weak banks, and monetary reform and that the government should try to reduce borrowing for the military expenditure. The only way to avoid collapse is restore public funds instead of only focusing on the military.
Worldwide Consequences
Due to the whole situation, Russia is under sanctions from other nations and excluded from SWIFT effecting the economy of increasing the magnitude of Russia’s problems. And if the hidden debt bubble were to bursts, the global impacts could worsen even more which may include consequences such decreasing commodity prices, regional capital flight, and further instability in the international market.
Conclusion
In sum up, Russia’s banking system is reaching a critical point. If the government doesn’t work towards a meaningful reform, transparency, and a reduction in hidden war debt, the country will likely struggle against a major financial crisis with significant consequences both with the nation and internationally.
