Brendan Cole is a reporter for Newsweek in London, UK. The target is Russia and Ukraine, especially the war introduced through Moscow. He also covers other geopolitics spaces, adding China. Brendan joined Newsweek in 2018 from international business times and, as well. English, meet Russian and French. You can tap Brendan by emailing b. cole@newsweek. com or follow him on his X @BrendanmarkCole account.
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
Russia is financing its military spending through a shadow plan that poses a “seismically disruptive” threat to an economy already buffeted by high inflation and interest rates, according to an analysis.
Craig Kennedy, a former investment banker of Morgan Stanley, described how the Russian State forces banks to factor preferential loans to the army that make possible the war efforts of President Vladimir Putin in Ukraine.
That gives the Russian economy a better bill of health, misleading experts into thinking that Putin can continue with record military spending without any adverse effects to the country’s finances, according to Kennedy.
Newsweek has contacted by email the Russian Finance Ministry, Russia’s central bank and Kennedy for comment.
Despite the difficult sanctions, the Russian state media said there were forecasts for the expansion of the GDP of 2. 5% in 2025, however, this is in a higher inflation rate of 8. 9%, which has been seduced through of a personnel shortage and a record key interest.
In December, Putin approved a record defense budget, which puts 32. 5% of the general government expenses in reserve by 2025, $ 126 billion.
Kennedy’s findings suggest that the Russian economy could face corporate and banking collapse with its continued military spending, suggesting that Western support for Kyiv may be able to surpass Moscow’s ability to maintain a war of attrition.
Kennedy said Russia has followed a two-track strategy to fund its war via its defense budget expenditures as well as an off-budget plan of similar size enabled by a law enacted on February 25, 2022, which compels Russian banks to give preferential loans to military-related businesses.
During this period, Russia had to contend with a 71% expansion of corporate debt $415 billion or 19. 4% of GDP, spending more than oil and spending on fuel and the defense budget, Kennedy said in his navigation in the bulletin on Russia.
This is that the general prices of the Russian war “far exceed” which would suggest the official budget spending.
This off-budget defense funding was harder to sustain during the second half of 2024, spiking inflation and pushing up interest rates for “real” economy borrowers to above 21 percent, “creating the preconditions for a systemic credit crisis,” Kennedy said.
He said that preferential bank loans had been granted up to $ 250 billion to defense contractors, many of whom had poor credit.
This is driving up inflation and interest rate hikes and risks triggering a systemic crisis and the longer Moscow delays ending the war, the closer it will move toward corporate and banking collapses that the Russian government would be forced to cover.
In informing Kennedy’s findings, Financial Times said Putin is “sitting in a monetary time bomb of his own creation” and that kyiv’s allies will have to deny Moscow greater access to external funds.
“Putin requested the Russian banking system, the banks required to provide the designated corporations through the selected preferential conditions of the government. “
Craig Kennedy, a former investment banker in substitution: “For Moscow, the threat of credits occasionally, with its prospective seismically disturbing, it would be much faster to be worried that the slow combustion threats such as the fall in GDP. “
Vasily Astrov, the main economist of the Vienna Institute for Foreign Economic Studies told Newsweek: “War expenses are a transparent budget duty for the State, while preferential credits are not. ” And “preferential” interest rates had been covered through the state’s pocket. “
The Russian economy continues to face turbulence in 2025. Economist Igor Lipsits stated in The Independent Novaya Europe that the Russian central bank’s measures to combat inflation opponents, such as hiking to the key interest rate, will mean fewer goods and services, higher retail value and a drop in the genuine source of income for Russians.
The key interest rate of the Central Bank of Russia is 21%, which was the highest since the war began, it did not consider as expected in December.
Astrov said that if the rates remain in manageable titles and the resolution of the Central Bank to move its guardian point adjustment policy in that direction, “I do not believe that the dangers for monetary stability will be too important for the predictable future. “
Brendan Cole is a Newsweek journalist in London in the United Kingdom. Its objective is Russia and Ukraine, in specific the war introduced through Moscow. It also covers other geopolitical spaces, adding China. Brendan joined Newsweek in 2018 by International Business Times and, as well as in English, meets Russian and French. You can touch Brendan by sending an email to B. cole@newsweek. com or follow him in his account x @brendanmarkcole.
Brendan Cole is a Newsweek journalist in London in the United Kingdom. Its objective is Russia and Ukraine, in specific the war introduced through Moscow. It also covers other geopolitical spaces, adding China. Brendan joined Newsweek in 2018 by International Business Times and, as well as in English, meets Russian and French. You can touch Brendan by sending an email to B. cole@newsweek. com or follow him in his account x @brendanmarkcole.