Russia’s Economy Is Imploding—and the Kremlin Knows It

Surging debt, skyrocketing food prices, and silent bank runs point to a regime on the edge. Behind the military façade lies a financial system in collapse.

In late 1916 and 1917, the Russian economy collapsed, causing Tsarist soldiers, by the hundreds of thousands, to abandon their positions, often killing officers on the way out, before joining roaming groups to cause mayhem in major cities of Russia. Within a short period, the Tsar not only lost the war - but also his life. Could today’s Russia go down the same path?

Between October 2024 and April 2025, Russia’s credit card delinquencies surged by nearly 70%, reaching 110 billion rubles (approximately $1.2 billion USD). This spike reflects a populace increasingly unable to meet even basic financial obligations.¹

So many Rubles, yet so little value.

At the same time, Russian household budgets are being strained to the breaking point. Families are now allocating 35% of their income to food, 28% to rent, and 4–7% to utilities, leaving less than 30% of their income for all other expenses, including debt repayments. By comparison, U.S. households spend about 44% on these combined necessities.² To make matters worse, the Central Bank of Russia has raised the key interest rate to 20% in an attempt to control inflation. This move has pushed credit card interest rates above 30%, driving many borrowers into financial insolvency.³ ⁴

See the video presentation of this article, here.

These pressures are not limited to individual households. In early 2025, the Central Bank resumed weekly repo auctions to inject liquidity into a banking sector increasingly short on cash.⁵ This intervention signals a deeper liquidity crisis behind the scenes. Simultaneously, banks have begun tightening credit conditions across the board: reducing credit limits, raising approval thresholds, and in some cases suspending new credit issuance altogether. These actions suggest that the financial sector is bracing for a broader wave of defaults and systemic instability.

The silent driver of much of this distress is inflation. By December 2024, Russia’s Consumer Price Index (CPI) inflation hit 9.5%, according to Rosstat. The price increases for staple food items were particularly alarming: potatoes rose by 92%, onions by 48%, and butter by 36.5%.⁶ ⁷ These price spikes have gutted the purchasing power of average Russians, disproportionately harming low- and middle-income earners.

In a move described officially as a fraud prevention measure, the Kremlin has authorized banks to limit daily cash withdrawals to 50,000 rubles (around $550). In reality, however, this step appears designed to preempt panic-driven bank runs, reflecting a growing public mistrust in the Russian financial system.⁸

The macroeconomic picture is equally grim. The Central Bank of Russia recently revised its GDP forecast for 2025 down to a range of just 0.5% to 1.5%, sharply reduced from earlier estimates.⁹ This reflects the anticipated drag from falling consumer demand, reduced private investment, and the cumulative pressure of economic sanctions and military expenditures.

The most telling indicator of Russia’s current priorities is its 2025 federal budget: the government has allocated 13.5 trillion rubles (roughly $145 billion USD) to defense spending.¹⁰ This figure amounts to 6.3% of GDP and approximately 32% of total federal spending. It demonstrates the regime’s willingness to sacrifice economic stability and public welfare in order to sustain its military aggression.

Taken together, these trends form a deeply troubling picture. Mounting household debt, accelerating inflation, liquidity stress in the banking sector, and disproportionate defense spending all point to a nation in financial freefall. History shows that under such conditions, political volatility often follows. If Moscow continues down this road, the consequences may be not only economic collapse, but regime destabilization on a historic scale.

Footnotes:

1. Izvestia reports a 70% increase in credit card delinquencies: https://iz.ru/en/node/1894394

2. Numbeo details household expenditure breakdown: https://www.numbeo.com/cost-of-living/country_result.jsp?country=Russia

3. AKM.ru on rising interest rates: https://www.akm.ru/eng/news/the-central-bank-resumes-repo-auctions-for-a-period-of-one-month/

4. NBC on rising credit costs and inflation: https://www.nbcnewyork.com/news/business/money-report/russian-food-prices-are-soaring-but-no-one-dares-blame-putin-and-the-war/6014950/

5. Central Bank of Russia resumes repo auctions: https://www.akm.ru/eng/news/the-central-bank-resumes-repo-auctions-for-a-period-of-one-month/

6. Meduza on food price inflation: https://meduza.io/en/short/2025/01/22/sticker-shock

7. DeepNewz provides CPI data: https://deepnewz.com/business/russia-s-inflation-hits-9-5-december-2024-amid-rising-food-prices-potatoes-up-92-a8014e9a

8. Reports on new cash withdrawal restrictions: https://parsers.vc/news/250411-new-cash-withdrawal-rules--a-double-edged/

9. Bank of Russia's GDP forecast: https://cbr.ru/eng/about_br/publ/ondkp/on_2025_2027/

10. Reuters on defense spending: https://uk.finance.yahoo.com/news/russia-hikes-national-defence-spending-123843539.html