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.
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
Russia finances its military spending thanks to a ghost plan that poses a “seismically disruptive” risk to an economy already shaken through higher inflation and interest rates, according to one analysis.
Craig Kennedy, a former investment banker at Morgan Stanley, described how the Russian state is forcing 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 larger physical attention bill, with Mavens misleading into thinking that Putin can continue to register the military by spending any negative effects on the country’s finances, according to Kennedy.
Newsweek has contacted by email the Russian Finance Ministry, Russia’s central bank and Kennedy for comment.
Despite the difficult sanctions, Russian state media said there were forecasts of GDP expansion of 2. 5% in 2025, however, this happens amid a top inflation rate of 8. 9%, which is extremely cheerful through a staff shortage and a record key interest rate. .
In December, Putin approved a record defense budget, which puts 32. 5% of the government’s overall spending in reserve for 2025, $126 billion.
Kennedy’s findings suggest that the Russian economy could face corporate and banking collapse with its continued military spending, suggesting that Western support for Kyiv may be able to surpass Moscow’s ability to maintain 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 means Russia’s total war costs “far exceed” what official budget expenditures would suggest.
This understanding defense financing was harder to occupy the 2024 momentum, reverse inflation, and expand interest rates for the economy’s “real” borrowers to 21%, creating the prerequisites of situations for a systemic credit crisis,” Kennedy said.
He said preferential bank loans up to $250 billion had been given to defense entrepreneurs, many of whom had poor credit.
This is driving up inflation and interest rate hikes and risks triggering a systemic crisis and the longer Moscow delays ending the war, the closer it will move toward corporate and banking collapses that the Russian government would be forced to cover.
When informing Kennedy’s conclusions, Financial Times said Putin “sits in a monetary time bomb for his own manufacturing” and that Kyiv’s allies will have to reject Moscow greater access to external funds.
“Putin has requested the Russian banking system, with the necessary banks to lend the designated government in selected preferential terms. “
Craig Kennedy, a former investment banker in substitution: “For Moscow, the threat of credits occasionally, with its prospective seismically disturbing, it would be much faster to be worried that the slow combustion threats such as the fall in GDP. “
Vasily Astrov, senior economist at the Vienna Institute for International Economic Studies told Newsweek: “War spending is a clear fiscal liability for the state, whereas preferential credit is not. The latter would have entailed extra fiscal spending, only if the difference between ‘market’ and ‘preferential’ interest rates had been covered from the state pocket.”
The Russian economy continues to deal with turbulence in 2025. Economist Igor Lipsits declared in The Independent Novaya Europe that the measures of the Russian Central Bank to combat opposite to inflation, such as hiking at the key interest rate, will mean less goods and Services, upper retail value and a fall in the genuine source of income for Russians.
The key interest rate of the Central Bank of Russia is 21%, which, which was higher since the war began, has not been higher than expected in December.
Astrov said that if the rates remain in manageable titles and the resolution of the Central Bank to move its guardian point adjustment policy in that direction, “I do not believe that the dangers for monetary stability will be too important for the predictable 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 reporter for Newsweek in London, UK. The target is Russia and Ukraine, especially the war introduced through Moscow. He also covers other geopolitics spaces, adding China. Brendan joined Newsweek in 2018 from international business times and, as well. English, meet Russian and French. You can tap Brendan by emailing b. cole@newsweek. com or follow him on his X @BrendanmarkCole account.