Russia’s financial system is reportedly coming under increased pressure as Moscow’s war in Ukraine nears its fourth full year.
The White House is seeking to restart peace talks with Ukrainian President Volodymyr Zelensky this weekend, ahead of a meeting with President Donald Trump in Florida on Sunday. Russian troops have stepped up bombings in Ukraine ahead of the meeting, but prolonged fighting poses risks to the economy.
A Russian official told the Financial Times: ‘A banking crisis is possible’ washington post recently requested anonymity. “A non-payment crisis is a possibility. I don’t want to think about the war continuing or escalating.”
The Russian economy has shown surprising resilience in the face of tough Western sanctions since President Vladimir Putin invaded Ukraine in early 2022. At the time, China and India were eager to snap up cheap Russian oil to fill the Kremlin’s coffers and provide revenue for its military.
But recently, energy prices have plummeted and Europe and the United States have tightened sanctions. Oil and gas revenue fell 22% in the first 11 months of this year, and Reuters estimates revenue in December will be down nearly 50%.
To make up for the shortfall in energy revenue, Moscow tapped its sovereign wealth funds. But now that money is running out, so the government has to raise taxes to raise revenue.
At the same time, a tight labor market and high inflation have forced central banks to keep interest rates high, while recent easing has failed to stem a decline in spending across several consumer categories.
As businesses feel the pinch of high interest rates and weak consumption, Russian data showed unpaid wages nearly tripled in October from a year ago to more than $27 million, including postal Adding that furloughs and shorter work weeks are also becoming more common.
As a result, more consumers are having trouble repaying their loans. Given the headwinds, it is not the first time that Russian officials have warned of a banking sector or default crisis.
In June, Russia’s banks raised red flags about a potential debt crisis as high interest rates weighed on borrowers’ ability to repay loans. That same month, the head of the Russian Union of Industrialists and Entrepreneurs warned that many companies were in a “pre-default situation.”
Sberbank CEO German Gref, one of Russia’s top bank governors, said in September that the economy was at “technical stagnation” after warning in July and August that growth was close to zero.
