Russia’s national defense spending has skyrocketed since the onset of its large-scale invasion of Ukraine in 2022, more than doubling by 2024.
Credit Crisis and Instability
With military costs straining the Kremlin’s budget, economic experts predict tough times ahead for President Vladimir Putin, who faces both an intensifying credit crisis and economic instability, according to Ziare.
In the last week, investor confidence has further eroded, evidenced by a wave of losses in Russia’s bond market.
The Kremlin recently canceled a $5 billion bond auction due to a lack of buyers, and construction firms such as Samolet, Brusnika, and Strana Development saw their bonds lose 4-5% in nominal value.
This trend has driven yields on these bonds to between 34% and 37%, alarming analysts and pointing to deepening troubles in the country’s credit markets.
Growing Desperation
Russia’s defense budget has expanded from £39 billion (approximately $50 billion) in 2021 to £93 billion ($117 billion) in 2024, contributing to the country's widening fiscal deficit.
In 2021, Russia’s federal budget enjoyed a small surplus; however, the government now projects a 1.1% GDP deficit for 2024, as the soaring costs of warfare strain finances.
The Kremlin’s budget woes coincide with rising food inflation. In a bid to combat shortages, Russia recently began importing butter from Turkey and the UAE after the price of this staple surged by 23% in 2024.
Moscow is also negotiating tax-free imports of 30,000 tons of butter to stabilize prices. Amid growing desperation, Russia signed an unusual barter agreement with Pakistan to trade chickpeas for mandarin oranges.
Alexander Mertens, a finance professor at the International Business Institute in Kyiv, warns that Putin’s options are limited.
Continuing the war risks a deeper economic collapse, yet any shift toward diplomacy might also backfire. Mertens notes that either path could send Russia’s economy into crisis.
