Discussion on 'The hidden risks to Russia's war finances'

With Craig Kennedy, Center Associate, Davis Center for Russian & Eurasian Studies, Havard University

Russian officials and some Western economists claim that Russia has shrugged off Western sanctions and can comfortably fund its costly war on Ukraine well into the future. According to the IMF, Russia's 2023 and 2024 GDP growth came in at a strong 4.1 per cent. And its wartime budgets show only modest deficits. But there are also signs of strain: growth has been heavily tilted to war-related industries and built on unprecedented levels of corporate borrowing—much of it state-directed soft loans. This debt surge has fueled rising inflation, which exceeded 9 per cent in 2024, and forced the Central Bank of Russia to hike its key rate to a record 21% in October 2024. Meanwhile, the 2025 budget looks in trouble, with spending up, oil revenues down, and increasing talk about the need for cuts. So, how balanced and resilient are Russia’s war finances? Can Russia keep relying on off-budget soft loans to help fund the war? What systemic risks do these war debts pose? And can Western sanctions roll back the "shadow fleet" and put further pressure on Russia’s all-important oil revenues?