The Russian economy is sinking deeper and deeper into crisis due to massive military spending, a budget deficit, falling oil and gas revenues, and problems in the banking system. However, it would be unwise to expect that financial collapse will force the Kremlin to end the war: economic problems are not a priority for the Russian leadership, whose main goal is to retain power. Meanwhile, ordinary Russians are already feeling the effects of militarization – from retirees and public sector employees to property owners, whose assets are gradually losing value.
Igor Lipsits, Doctor of Economics, explained to 24 Channel why the collapse of the Russian economy does not bring the war any closer to an end, how critical the Russian budget deficit is, and whether the country is at risk of default. The economist also explained why Moscow cannot count on China to come to its rescue, how the war is affecting pensions and the social sector, and why it is becoming increasingly difficult for Russians to sell real estate and transfer money abroad.
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The Illusion of Economic Coercion for Peace
Many people hope that the collapse of the Russian economy will force the Kremlin to seek a compromise and end the war. However, Igor Lipsits categorically refutes this scenario. Russia’s economy is indeed collapsing under the weight of military spending, but this is not leading to peace.
For the Russian leadership, economic indicators, living standards, or even demographic losses are of no consequence. The main goal is to preserve the power of a single individual, whose security is guaranteed only as long as the war continues. Therefore, expecting that steps toward peace will be taken to save the economy is a futile illusion.
All actions of the Central Bank of the Russian Federation and Elvira Nabiullina are pointless, as they attempt to regulate an economy – which has already become entirely command-and-control and militarized – using market-based methods. Budget injections into the war are destroying the financial system, and no manipulation of the key interest rate will change that.
The Budget Deficit and the First Signs of Default
The financial situation in Russia is rapidly deteriorating, as evidenced by a series of unprecedented decisions. For the first time in over twenty years, the government has postponed the payment of salaries to military personnel in the rear from December to January. This indicates an acute shortage of funds and an attempt to artificially reduce Russia’s massive budget deficit, which could reach 7–11 trillion rubles by the end of the year.
Moreover, the possibility of a default on domestic debt is already being raised in public discourse. There is discussion of suspending interest payments on government bonds, which next year will total 4.5 trillion rubles – an amount exceeding the Russian Federation’s combined spending on healthcare, education, and culture. A similar scenario was already implemented in 1998 and led to the collapse of the banking system.
Oil and gas revenues are also falling: despite rising global prices, Russia has lost 14% of its revenues due to the need to subsidize the oil industry and repair oil refineries destroyed by drones.
Pension Crisis and Regional Decline
The consequences of the militarization of the economy hit the most vulnerable segments of the population the hardest. A covert confiscation of pension savings is already underway: funds are being transferred to the supplementary insurance system, where they will be used to purchase Ministry of Finance bonds – that is, to finance the war.
The ratio of pensions to earnings in Russia has fallen below 25%, turning more than 40 million civilian pensioners into paupers. A real threat of delays in pension payments is looming due to Russia's growing pension fund deficit.
At the same time, mass layoffs of public sector workers – doctors, nurses, and teachers – have begun in the regions. Russia is losing about 600,000 people annually, and hospitals and maternity wards are closing under the pretext of “optimization.” The state is deliberately driving people into extreme poverty to force them to sign contracts to fight in the war and pay off loans with their own lives.
The Collapse of the Myth of Russian Resources
Moscow’s hopes for an economic pivot to the East and salvation through China have not materialized. The share of transactions in yuan has plummeted due to Chinese banks’ fear of U.S. sanctions.
Beijing has been ignoring the Power of Siberia 2 project for 20 years and buys Russian gas at one-fifth the price Europe paid. Russia remains merely a raw materials appendage, supplying components for the war but receiving no technological development in return.
The global shift to electric vehicles is dealing an additional blow to Russian exports: for example, demand and prices for palladium – which previously generated windfall profits – are plummeting. The myth that the world dreams of seizing Russia’s resources is shattering against reality: these resources are becoming less and less needed, and the state itself is ready to give them away for next to nothing.
The Real Estate Trap: Why It’s Too Late for Russians to Flee
For those Russians who hoped to sell their homes and leave, the window of opportunity has practically closed. The problem lies not only in falling demand in cities that are emptying out, but also in the inability to transfer funds abroad due to sanctions. European and even loyal banks are refusing en masse to process transactions with Russia due to the “toxicity” of Russian clients.
At the same time, the cost of maintaining real estate within the country is rising: the government plans to increase the assessed value of housing by 23%, which will automatically lead to higher taxes. Russians find themselves in a situation where their assets are depreciating, while the state continues to squeeze every last resource out of them to prolong a senseless war.
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