Inflation Threatens Russian Economic Stability – JP
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Russia has enjoyed remarkable stable financial policy since the Yeltsin era, with energy profits moved to rainy-day funds, and interest rate policy seeming quite professional.
The war is testing this financial history as inflation due to the war economy remains resilient and robust.
As in previous wartime years, the biggest single item of state spending in 2025 will be the armed forces. Spending on national defense and security alone will top 8% of GDP (a post-Soviet record), reports Russian independent news outlet The Bell.
Between December 2023 and July this year, interest rates in Russia were 16%. Since then, however, inflation has forced the regulator to repeatedly hike rates until they hit 21 percent in October, a post-Soviet record.
Despite its best efforts, the Kremlin has not been able to simultaneously fight its war in Ukraine, fund social and infrastructure projects, and keep inflation and the ruble under control. The economy hit a wall this year: there is no spare industrial capacity; there are no more workers; and exports are being squeezed by Western sanctions.
If the war continues past 2025, economic reality will force the Kremlin to impose harsher financial stress on the Russian population, which could lead to political instability as well.