Jens Asbjørn Bøgen
Draft budget documents show Russia plans to plug the funding hole with government bonds.
Moscow is preparing to pile on national debt at a pace not seen in more than twenty years.
According to draft budget documents reported by Reuters, the Russian Ministry of Finance plans to issue trillions of rubles in government bonds to plug a massive funding hole.
The strategy marks a sharp turn from earlier years. The Kremlin initially relied on its rainy-day fund to finance military spending. Now, officials expect national debt to climb from under 20% of economic output toward 24% over the next three years.
According to The Moscow Times, that would be the highest level since 2002. Back then, the country was still recovering from its catastrophic 1998 debt default before high oil prices saved the budget.
Printing money for debt
To keep the system moving, state institutions are stepping in directly. “Without the Central Bank’s support, we won’t be able to finance the budget deficit even this year,” economist Sergei Aleksashenko noted. The regulator has been funneling liquidity into commercial banks so they can purchase state bonds.
Other experts warn that this strategy carries severe long-term risks. Economist Igor Lipsits described the current playbook simply: “Borrow, borrow, borrow, and then issue money in exchange for borrowing.”
He added that the approach is having a direct impact on stability. “All of this is destroying the economy,” Lipsits believes.
The military bill rises
Defense costs are the driving engine behind the budget surge. Next year, national defense will swallow 35% of all government spending, according to reports by The Moscow Times.
Compared to Russia’s GDP, defense spending now stands at approximately 7-8% – the highest since the fall of the Soviet Union.
Debt servicing alone will soon claim more than one in every ten rubles in the national budget. Before the conflict began, that figure stood at just over 4%.
“The war is becoming more and more expensive every year,” Aleksashenko emphasized. The overall economic pressure has even raised alarms among Western intelligence agencies. FAZ reported that a senior diplomat described recent US intelligence assessments clearly: “Russia is losing the war.”
For ordinary households, the consequence will be higher prices and tighter budgets. As Lipsits warned, the Kremlin is creating “enormous debts that Russians will have to pay off for a very long time.”
