Despite the severe consequences of Russia’s invasion of Ukraine on its economy, Moscow’s propaganda efforts continue to promote a misleading narrative regarding its economic resilience. The Stockholm Institute of Transition Economics (SITE) has conducted ongoing research on the financial impacts associated with Russia’s full-scale invasion of Ukraine. Recently, SITE presented a new report to Sweden’s Minister of Finance, building upon its earlier analysis titled “The Russian Economy in the Fog of War,” published in the fall of 2024. This updated assessment reveals the economic strains experienced within Russia’s wartime economy.
The report highlights a considerable increase in off-budget military spending that surpasses the figures reported in official statistics. As a consequence, the true financial burden of the war—encompassing both actual expenditures and future financial obligations—is significantly higher than indicated in the government’s budget and debt metrics.
Following the release of the report, a discussion took place between Minister for Finance Elisabeth Svantesson and SITE Director Torbjörn Becker regarding the findings. The report indicates that the defence industry has become vital to Russia’s economy, prioritising military spending over other essential public investments.
Additionally, it outlines a notable decline in oil revenues, representing a key income source for Russia. It highlights the effectiveness of sanctions imposed by the EU and G7, as demonstrated by reduced oil exports. The country’s sovereign wealth fund has experienced substantial withdrawals, now accounting for less than 3% of GDP in liquid assets.
“It’s important that we continue to clearly show that Russia’s economy is not as strong as Putin asserts. Russia is spreading economic propaganda to portray the sanctions as ineffective, thereby undermining long-term support for Ukraine. We need to do everything we can to starve Russia’s war chest through additional and tougher sanctions,” said Minister Svantesson.Â
Despite these economic challenges, the Russian government continues to assert that it has time on its side. However, the overall economic landscape is becoming increasingly complex, marked by declining revenues, diminishing reserves, and limited access to international borrowing. Furthermore, there are reports that Russian authorities are concealing the true costs of the war by directing private banks to issue favourable loans to the military sector, thereby contributing to an increase in credit expansion within the banking system.
“Much of Russia’s economic data is now either strictly controlled or not published at all. Attempting to pin down actual figures for inflation or debt is like putting together a puzzle without all the pieces. However, it is clear that macroeconomic and financial imbalances have grown in Russia since last year,” highlighted SITE director.
In conclusion, analysing the Russian economy presents ongoing challenges due to a scarcity of reliable data, exacerbated by the government’s distortion of economic reporting for propaganda purposes and the reduction of publicly available information.
