Russia’s economy is an ‘illusion’ built on debt, and a banking crisis is ready to explode, intel report says, while the Kremlin may seize pensions
The energy crisis is already wreaking havoc on the Russian economy, and a banking crisis could soon break out due to the pile of debt burdened by consumers and businesses.
The Kremlin is relying on banks to provide massive liquidity to the economy as its own budget comes under increasing pressure from Vladimir Putin’s war on Ukraine, according to a European intelligence report seen by Reuters.
State programs even encouraged millions of Russians to take out three or more loans at once. But lenders are now vulnerable due to rising debts and worsening credit, while consumers are buckling in the face of high inflation.
The June report, prepared at a time when the European Union is moving towards new sanctions against Russia, estimates that 10% of corporate loans may not be repaid, and 15% of individual loans at some leading banks may be delinquent by 2024, a sharp increase from 2024.
Additionally, the number of Russians declaring bankruptcy last year increased by almost a third, to more than 500,000. But government-backed loan programs, loan restructurings and government aid overshadow just how bad conditions are.
“The situation creates the illusion of a dynamic economy that disguises an explosive situation that could in reality be triggered by an economic shock such as an ambitious sanctions package against banks,” the report said, according to Reuters.
The deteriorating state of Russia’s financial sector reflects its performance on the battlefield. Ukraine’s new tactics and drones halted Russia’s advance, pushing losses above replacement rate and destroying much of the country’s oil infrastructure.
Damage to Russian refineries led to severe fuel shortages across the countries. Meanwhile, falling oil prices and Ukraine’s attacks on exports have reduced the Kremlin’s energy revenue.
As a result, Russia’s federal budget deficit more than doubled its 2025 level to 6 trillion rubles ($83 billion) at the end of May, surpassing the 3.8 trillion rubles projected for the whole of this year.
The government is reducing reserves in the sovereign wealth fund to cover the deficit, but that well has almost dried up.
With few resources available to cover the costs of the Ukrainian war, the Kremlin may set its sights on the nest eggs of the general population.
The finance ministry is preparing legislation that could allow it to access $40 billion in retirement savings held in privately managed funds.
Similarly, the leader of the Russian Communist Party recently told parliament that the 130 trillion rubles held in bank accounts must be “mobilized” to address the country’s economic and budget problems.
