On June 20, 2025, Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs (RSPP), delivered a stark warning at the St. Petersburg Economic Forum. He declared that the prolonged period of high interest rates has pushed Russia’s economy to the edge of a debt crisis, with many companies already in a pre-default stateregarding their obligations. This grim assessment echoes across multiple sources, including reports from Dialog.ua, Moscow Times, and MRC.ru.
High Interest Rates and a Paralyzed Credit Market
Russia is facing a systemic debt crisis, worsened by a key interest rate stubbornly above 20%, which has nearly frozen lending activities. The Central Bank of Russia reports that one in six large companies struggles even to pay interest on their loans, effectively borrowing just to patch existing financial holes. The volume of problematic corporate loans is approaching 4 trillion rubles, while the government, drained by soaring military expenses and declining oil and gas revenues, can no longer provide broad economic support.
The once robust National Wealth Fund (NWF) has shrunk threefold in liquidity, now standing at just 2.8 trillion rubles, dangerously close to the minimal level required for economic stabilization.
Small and Medium Businesses Suffer Deep Losses
The crisis is not limited to big corporations. Small and medium enterprises (SMEs) are rapidly losing liquidity due to broken payment chains and delayed contract payments. Many firms prefer paying penalties rather than taking on new, punishingly expensive loans.
This hidden wave of bankruptcies — largely invisible in official statistics — threatens the economic backbone of Russia’s regions, where local suppliers and service providers form the core of industrial activity.
“Managed Contraction” or Economic Decline?
Under the guise of “managed contraction,” authorities are phasing out allegedly inefficient industries, particularly mines and industrial plants in remote, mono-industrial regions. Promises of worker retraining and job creation remain unfulfilled, leading to widespread layoffs that threaten entire towns dependent on a single employer.
The fallout includes a sharp decline in living standards and growing social tensions, signaling a new wave of regional economic decay.
The Shift to a Military Economy Strangles Growth
Russia’s economic model has shifted drastically: instead of the state supporting businesses during crises, companies are expected to sustain the economy themselves — until collapse.
Military expenditures have drained the budget, and plummeting revenues from energy exports exacerbate the situation. The Ministry of Finance continues to push burdens onto entrepreneurs despite soaring prices and falling consumer demand.
Banking Sector Tightens the Noose
With banks enforcing stricter loan conditions and rates exceeding 20%, many entrepreneurs, especially in trade and services, are forced underground into the “gray economy.” This not only reduces tax revenues but also erodes social stability, as the state unintentionally drives honest businesses into illegality, weakening the legal economic framework.
Ad Hoc Government Measures Replace Strategic Planning
Instead of a coordinated economic strategy, Russia relies on a manual, case-by-case approach to address sectoral crises. Tax deferrals and debt restructuring are handed out selectively, favoring large businesses with political connections, while smaller players face extinction.
This patchwork method threatens the investment climate and the systemic health of the economy.
The True Cause: War and Its Consequences
At the root of the crisis lies the ongoing war, which has destroyed budgetary balance and long-term economic planning. The bulk of state resources now go to military needs — even the National Wealth Fund is spent primarily on defense.
With logistics disrupted and sanctions tightening, private business is treated as expendable. This militarization of the economy throttles innovation, stunts modernization, and makes Russia ever more dependent on government contracts and authoritarian controls.
As a result, Russia stands at a critical crossroads, facing escalating bankruptcies, a widening social crisis, and a fragile economy vulnerable to further shocks.
