Economic Instability in Russia
Russia’s Central Bank is presenting a facade of economic stability, while in reality, the country is facing deepening economic instability. The Institute for the Study of War (ISW) has warned about this in a recent report, highlighting the unsustainably high payments to the military and the resulting labor shortage as major contributors to the problem.
Unsustainable Military Spending
The ISW analysis reveals that the high payments to the military are undermining Russia’s economic resilience. Despite the Kremlin’s efforts to demonstrate stability, the consequences of the prolonged military conflict are being felt tangibly in the economy. The labor shortage in both the civilian and defense sectors is hampering economic growth, defense industry production, and the creation of new armed forces.
Labor Shortage and Economic Consequences
The discrepancy between official statistics and real economic processes calls into question the reliability of the Central Bank’s data. The ISW emphasizes that Russia is not able to sustain prolonged hostilities without forced mobilization, which President Vladimir Putin continues to oppose. Additionally, the Russian economy can hardly withstand the ever-increasing costs of recruiting new recruits.
Concerns About Financial Stability
Russian bankers are privately expressing concern about the growing number of non-performing loans, which contradicts the Central Bank’s assurances of stability. According to Bloomberg, three of Russia’s systemically important lenders may face the need to recover significant amounts lost due to bad loans. These loans grew by 1.2% in 2025 and are expected to reach 6-7%. While the ISW could not independently confirm Bloomberg’s report, it notes growing concerns among Russian authorities about financial stability.
Recent Developments in the Conflict
Meanwhile, tensions are rising on the front lines. On the night of July 16-17, Ukrainian forces launched strikes on Moscow City and St. Petersburg, part of an ongoing Ukrainian campaign to weaken Russia’s defense-industrial base. Russia and Ukraine also carried out another exchange of bodies of killed servicemen in accordance with the agreements reached in Istanbul on June 2.
Political Developments in Ukraine
On the domestic political level in Ukraine, the Verkhovna Rada approved the appointment of former Economy Minister Yulia Sviridenko as the new prime minister. President Volodymyr Zelensky appointed former Justice Minister Olga Stefanishina as special representative to the United States. On the front line, Ukrainian forces made progress in the Pokrovsk region, while Russian forces advanced near Borova.
Conclusion
In conclusion, Russia’s economic instability is a growing concern, with the Central Bank’s facade of stability hiding the true extent of the problem. The unsustainably high payments to the military, labor shortage, and growing number of non-performing loans are all contributing to the economic instability. As the conflict continues, it remains to be seen how Russia will address these challenges and maintain its economic resilience. The ongoing conflict and political developments in Ukraine will also play a significant role in shaping the economic future of the region.
