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.
According to the facts, it was observed and verified first-hand through the journalist or informed and verified from competent 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 at Morgan Stanley, described how the Russian state forces banks to factor in preferential loans to the military that make President Vladimir Putin’s war efforts in Ukraine possible.
This provides the Russian economy with a greater physical care bill, with Mavens deceiving when thinking that Putin can continue to register the army spending any negative effect on the country’s finances, according to Kennedy.
Newsweek reached out via email to Russia’s Finance Ministry, the Central Bank of Russia 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.
Putin in December approved a record-breaking defense budget, setting aside 32.5 percent of the government’s total spending for 2025, worth $126 billion.
Kennedy’s findings recommend that the Russian economy can also cope with the cave of companies and banks with their continued spending on the military, recommending that Western for Kyiv can possibly surpass Moscow’s ability to sustain 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.
In that period, Russia has faced a 71 percent expansion in corporate debt worth $415 billion or 19.4 percent of GDP—higher than oil and gas revenues and defense budget expenditures, Kennedy said in his Navigating Russia newsletter.
That is, Russia’s overall war prices “far exceed” what official budget spending would suggest.
This financing of understanding defense was more difficult to occupy the moment of 2024, to reverse inflation and expand interest rates for “real” borrowers of the economy to 21%, creating the previous requirements of situations for a systemic loans crisis “Kennedyy said.
He said that preferential bank loans had been granted up to $ 250 billion to defense entrepreneurs, many of whom had poor credit.
This increases the increases in inflation and the interest rate and the dangers that trigger a systemic crisis and the delays in Moscow more time for war, closer will be for corporations and banks than the Russian government would be obliged to discover .
In informing Kennedy’s conclusions, Financial Times said that Putin “is in a monetary time bomb in his own manufacturing” and that Kyiv’s allies will have to reject 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 substitution investment banker: “For Moscow, the threat of credit occasionally, with its seismically disturbing prospect, would be much quicker to be concerned than slow combustion threats such as falling GDP. “
Vasily Astrov, the main economist of the Institute of International Economic Studies of Vienna, told Newsweek: “War spending is a transparent fiscal duty for the State, while preferential credits are not. ” And ‘preferential’ interest rates had been covered through the state pocket. “
Russia’s economy is likely to continue facing turbulence in 2025. Economist Igor Lipsits told independent outlet Novaya Europe that Russian Central Bank’s measures to combat inflation, like hiking the key interest rate, will mean fewer goods and services, higher retail prices, and a fall in real incomes for Russians.
The key interest rate of Russia’s central bank is 21%, which, which was the highest since the war began, was not raised as expected in December.
Astrov said if rates stayed at manageable levels and the central bank’s decision to put its tightening policy on hold points in that direction, “I don’t think the risks to the financial stability are too high in the foreseeable 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 journalist for Newsweek in London in the United Kingdom. Its target is Russia and Ukraine, specifically the war introduced through Moscow. It also covers other geopolitical spaces, adding China. Brendan joined Newsweek in 2018 from International Business Times and, as well as English, knows Russian and French. You can tap Brendan by emailing b. cole@newsweek. com or follow him on his X @BrendanmarkCole account.