(MOSCOW) – Russia\u2019s 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.<\/p>\n
\u201cRussia\u2019s also been going into massive debts. Russia\u2019s external debt hits 20 year high,\u201d a report from The Moscow Times said.<\/p>\n
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.<\/p>\n
\u201cThere\u2019s 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,\u201d the report noted.<\/p>\n
Analysts warn that Russia\u2019s economic history includes repeated crises, suggesting structural vulnerabilities. \u201cIf any nation in the world is likely to collapse, it\u2019s the Russians. They\u2019ve done it twice in the last 110 years,\u201d the report added.<\/p>\n
Regional finances are also under pressure. Of Russia\u2019s 89 federal regions and oblasts, 74 are running budget deficits, spending more than they collect in tax revenue.<\/p>\n
\u201cRussia\u2019s regions post largest ever budget deficit\u2026 74 of them are running deficits. They\u2019re spending more than they\u2019re bringing in in tax revenue. So they\u2019re insolvent,\u201d the report said.<\/p>\n
Unlike some Western systems, these regions continue to operate despite deficits, increasing reliance on central government support.<\/p>\n
\u201cEventually, the Kremlin is going to have to bail out these cities and regions. Once again, where is the money coming from?\u201d the report asked.<\/p>\n
Key state industries are also heavily indebted. Russian Railways alone carries debt of about $51 billion, adding to wider sectoral pressures.<\/p>\n
\u201cEvery industry, every sector in Russia is running massive deficits,\u201d the report stated.<\/p>\n
Companies across the economy have been operating at losses for several years, raising concerns about long term viability.<\/p>\n
\u201cThey\u2019ve been spending more than they\u2019ve been bringing in in profits or revenue for the last three or four years. Eventually, this has to collapse,\u201d the analysis said.<\/p>\n
The structure of Russia\u2019s 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.<\/p>\n
\u201cThe 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,\u201d the report said.<\/p>\n
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.<\/p>\n
\u201cWhat Putin has been doing\u2026 is leveraging the private assets of these companies to debt holders to have these companies keep operating,\u201d the report noted.<\/p>\n
As a result, industries such as energy and defence continue to supply the state but often at a financial loss.<\/p>\n
\u201cThese companies are operating at losses\u2026 that is not how capitalism works,\u201d the report said.<\/p>\n
Executives are effectively required to prioritise state objectives over profitability, taking on debt secured against company assets.<\/p>\n
\u201cYou\u2019re going to keep operating at the prices the government wants\u2026 and you\u2019re going to take on debt and use your own assets as collateral,\u201d the report said.<\/p>\n
This approach increases the risk of insolvency. If companies fail to meet debt obligations, creditors could seek to seize assets through legal processes.<\/p>\n
\u201cEventually, the day is going to come when the debt collectors are going to try and seize the assets,\u201d the report said.<\/p>\n
Foreign investors purchasing Russian corporate debt could ultimately gain control of key assets if defaults occur.<\/p>\n
\u201cWhen a company goes bankrupt, shareholders are wiped out\u2026 the bond holders then become the new equity holders and gain control of the assets,\u201d the report explained.<\/p>\n
This raises questions about whether the Kremlin would allow foreign entities to take ownership of strategic industries.<\/p>\n
\u201cIs Putin actually going to allow that\u2026 are they really going to let the Chinese and the Indians and the Saudis take them over?\u201d the report asked.<\/p>\n
Analysts suggest the Kremlin is delaying a potential reckoning by extending borrowing and maintaining operations despite mounting losses.<\/p>\n
\u201cI don\u2019t think Putin will, but he\u2019s just kicking the can down the road,\u201d the report concluded.<\/p>\n