(MOSCOW) – Russia’s external debt has reached its highest level in two decades, raising concerns over the sustainability of its economy as the Kremlin continues to finance its war effort through borrowing and asset leverage.
“Russia’s also been going into massive debts. Russia’s external debt hits 20 year high,” a report from The Moscow Times said.
Despite the risks, foreign investors continue to purchase Russian bonds, including buyers from India, China and the Middle East, attracted by high interest rates even though Russia has previously defaulted on its debt.
“There’s still people in India or China or the Middle East willing to buy Russian debt even though Russia has defaulted on their debt in the past,” the report noted.
Analysts warn that Russia’s economic history includes repeated crises, suggesting structural vulnerabilities. “If any nation in the world is likely to collapse, it’s the Russians. They’ve done it twice in the last 110 years,” the report added.
Regional finances are also under pressure. Of Russia’s 89 federal regions and oblasts, 74 are running budget deficits, spending more than they collect in tax revenue.
“Russia’s regions post largest ever budget deficit… 74 of them are running deficits. They’re spending more than they’re bringing in in tax revenue. So they’re insolvent,” the report said.
Unlike some Western systems, these regions continue to operate despite deficits, increasing reliance on central government support.
“Eventually, the Kremlin is going to have to bail out these cities and regions. Once again, where is the money coming from?” the report asked.
Key state industries are also heavily indebted. Russian Railways alone carries debt of about $51 billion, adding to wider sectoral pressures.
“Every industry, every sector in Russia is running massive deficits,” the report stated.
Companies across the economy have been operating at losses for several years, raising concerns about long term viability.
“They’ve been spending more than they’ve been bringing in in profits or revenue for the last three or four years. Eventually, this has to collapse,” the analysis said.
The structure of Russia’s economy has further complicated the situation. Senior figures in major companies are closely aligned with the Kremlin, with leadership often dependent on loyalty to the Russian dictator Vladimir Putin.
“The person in charge is only there because Putin put him there or is fine with that person staying there as long as they pledge their loyalty,” the report said.
To sustain the war, the Kremlin has relied on leveraging corporate assets and encouraging companies to take on debt while continuing production at state controlled prices.
“What Putin has been doing… is leveraging the private assets of these companies to debt holders to have these companies keep operating,” the report noted.
As a result, industries such as energy and defence continue to supply the state but often at a financial loss.
“These companies are operating at losses… that is not how capitalism works,” the report said.
Executives are effectively required to prioritise state objectives over profitability, taking on debt secured against company assets.
“You’re going to keep operating at the prices the government wants… and you’re going to take on debt and use your own assets as collateral,” the report said.
This approach increases the risk of insolvency. If companies fail to meet debt obligations, creditors could seek to seize assets through legal processes.
“Eventually, the day is going to come when the debt collectors are going to try and seize the assets,” the report said.
Foreign investors purchasing Russian corporate debt could ultimately gain control of key assets if defaults occur.
“When a company goes bankrupt, shareholders are wiped out… the bond holders then become the new equity holders and gain control of the assets,” the report explained.
This raises questions about whether the Kremlin would allow foreign entities to take ownership of strategic industries.
“Is Putin actually going to allow that… are they really going to let the Chinese and the Indians and the Saudis take them over?” the report asked.
Analysts suggest the Kremlin is delaying a potential reckoning by extending borrowing and maintaining operations despite mounting losses.
“I don’t think Putin will, but he’s just kicking the can down the road,” the report concluded.
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