A new report suggests Russia’s claims of economic strength are “misleading”, with the country in fact spiralling towards a banking crisis. Moscow has doggedly insisted that its economy has only experienced a minor annual shortfall of 2% since the war in Ukraine began, despite an estimated military budget totalling 6.7% of its GDP last year, up from 3 or 4%. Consumer woes have also become commonplace under Vladimir Putin‘s regime, with a dwindling potato harvest, flailing oil reserves and high interest rates among the ways Russian citizens have shouldered the brunt of the Ukrainian conflict’s fallout.
Torbjorn Becker, who led the Stockholm Institute of Transition Economics (SITE)’s report into the country’s economy, said increased government spending as part of the “war economy” had kept Russia afloat in the short-term, but “opaque financing, distortionary resource allocaton and shrinking fiscal buffers” were now making it unsustainable. “Fiscal numbers in Russia don’t really correspond to what we think they are putting into the war effort,” he said, as reported by Reuters.
Mr Becker added that Moscow could be headed for a full-blown banking crisis, thanks to a potentially sky-high defecit caused by off-budget military financing through the banking system.
“[This] analysis highlights the unreliability of Russian statistics, and how the Russian economy is not performing as well as official statistics suggest,” European Economic Commissioner Valdis Dombrovskis said.
“The Commission broadly agrees with this analysis and the overall increasing fragility of the Russian economy. This underlies the importance of the international community’s ongoing efforts to limit the Kremlin’s capacity to carry out its war of aggression against Ukriane.”
Despite the worsening situation at home, Putin seems determined not to compromise on retaking as much ground as possible in Ukraine – refusing to attend peace negotiations in Turkey this week and puncturing hopes of a “breakthrough” in the conflict.
Although Moscow billed the talks, to which Putin sent a Russian delegation, as a “restart” of the Ukraine–Russia meeting that fell apart back in 2022, the president’s failure to attend in person has sparked frustration from European and US leaders intent on bringing an end to the bloodshed.
UK Prime Minister Keir Starmer said Putin was “standing in the way of peace”. “There was only one country that started this conflict – that was Russia,” he said. “That was Putin. There’s only one country now standing in the way of peace – that is Russia, that is Putin.”
US Secretary of State Marco Rubio also told reporters that the negotiations were in “a very difficult place” on Thursday evening, adding: “We hope we can find the steps forward that provide for the end of this war in a negotiated way and the prevention of any war in the future.”
