Additional Coverage:
- The Russian war economy is facing a ‘moment of truth’ as Putin’s dwindling cash reserves raise odds of a financial crash, expert says (newsbreak.com)
Nearly three years into the war in Ukraine, Russia’s economy is reaching a critical point. Expert Anders Åslund warns that inflation, shortages, and dwindling cash reserves could soon hinder the war effort.
Russia is facing what Åslund calls a “moment of truth.” High inflation, a struggling private sector, and critical shortages are combining to create a challenging economic environment.
Åslund believes Russia is headed for stagflation, a combination of high inflation and minimal economic growth. While official figures show inflation rising, independent estimates suggest the real numbers are much higher.
The war has driven up prices and created labor shortages. Many workers have been mobilized, killed, or have fled the country.
Defense spending continues to climb, while the government’s ability to raise money through taxes or bonds is limited. This leaves Russia increasingly reliant on its National Wealth Fund, which has shrunk dramatically since the war began.
Åslund estimates the remaining funds can only cover three-quarters of this year’s budget deficit. The falling ruble is adding to inflationary pressures, and sanctions are hampering businesses by restricting access to Western technology.
Åslund predicts rising inflation and public anger over food prices. Bankruptcies loom, and the government can’t afford bailouts. Businesses are pushing back against high interest rates, and the shortage of both labor and soldiers is reaching a crisis point.
The biggest problem is a lack of cash. Åslund believes liquid reserves could run out this fall, forcing budget cuts and potentially leading to price controls and rationing. He warns that the risk of a financial crash is increasing and could severely limit Putin’s ability to continue the war.
Other experts agree that Russia’s economy is unlikely to sustain the war effort long-term. Reports indicate Russia is struggling to replace lost weapons and is relying on older stockpiles.
However, some analysts believe the economic challenges, while significant, are not yet severe enough to force a quick end to the war. While acknowledging the economic strain, they suggest the Kremlin could likely sustain the war for at least another year.