ECONOMY
Economists Debate the Russian Economy’s Resilience
March 31, 2026
Over the last month, the Russian opposition media has seen a heated debate between economists. They disagree not on where the Russian economy is headed – both camps say things will get worse – but how much resilience the system has left and when it will face a crisis
Opposition Russian economists are increasingly divided. On the one side there is the “moderate” camp, including Dmitri Nekrasov, Sergei Aleksashenko and Vladislav Inozemtsev, all at the Center for Analysis and Strategies in Europe (CASE). They argue that the Russian economy does not exhibit signs of imminent collapse and remains capable of sustaining both the Ukraine war and the current political regime for years to come, albeit without producing meaningful economic growth. Their arguments have been laid out in two recent reports released over the past year (here and here). The opposing camp – chiefly Igor Lipsits and Vladimir Milov – argues, on the contrary, that the Russian economy is approaching a breaking point, as years of war have exacerbated a range of structural problems, such as inflation, technological constraints stemming from sanctions, declining business activity and a looming banking crisis. The debate has heated up, with each camp even questioning the competence of the other in articles and YouTube appearances.
What do the moderates say?
According to Nekrasov, most forecasts entailing the imminent collapse of the Russian economy are based on isolated evidence of deteriorating living standards and declining consumption among ordinary Russians. However, in his view, the worsening of economic conditions visible to the broader population does not mean the Kremlin is having difficulty allocating resources to priority areas: the war and regime security. Nekrasov believes the regime is able to redirect resources away from consumption toward military spending.
He maintains that the Russian regime does not behave as a rational economic actor and accounts for economic costs when making political decisions only to a limited degree. The full-scale war against Ukraine itself has done enormous damage to the Russian economy – from the freezing of more than $300 billion in assets held by the Central Bank to the imposition of sweeping sanctions by Western governments. The costs of continuing the war are significantly lower than these initial losses, Nekrasov reckons, so it would be strange to expect them to compel the Kremlin to halt military operations.
What do the moderates say?
According to Nekrasov, most forecasts entailing the imminent collapse of the Russian economy are based on isolated evidence of deteriorating living standards and declining consumption among ordinary Russians. However, in his view, the worsening of economic conditions visible to the broader population does not mean the Kremlin is having difficulty allocating resources to priority areas: the war and regime security. Nekrasov believes the regime is able to redirect resources away from consumption toward military spending.
He maintains that the Russian regime does not behave as a rational economic actor and accounts for economic costs when making political decisions only to a limited degree. The full-scale war against Ukraine itself has done enormous damage to the Russian economy – from the freezing of more than $300 billion in assets held by the Central Bank to the imposition of sweeping sanctions by Western governments. The costs of continuing the war are significantly lower than these initial losses, Nekrasov reckons, so it would be strange to expect them to compel the Kremlin to halt military operations.
Vardan Papikyan / Unsplash
In Nekrasov’s view, only critical economic costs could force the Kremlin to stop the war – costs that would either make it impossible to sustain military production at the required level or would trigger mass protests. The emergence of problems capable of generating serious public discontent is, in his assessment, very unlikely, given the high tolerance of many Russians, who lived through the 1990s, to such hardships. A physical inability to maintain military production is likewise unlikely: defense spending currently accounts for about 7% of GDP, theoretically leaving room for significant growth.
Russia’s budget is running a deficit, but, as Nekrasov notes, the government has managed to finance it by borrowing in the market. Banks are reporting strong earnings and are fully capable of purchasing sufficient volumes of government bonds to cover the deficit. Overall, public debt remains relatively low – at around 20% of GDP – and could rise to a still comparatively moderate 40%.
One argument frequently cited in support of the more pessimistic outlook is the possibility of a banking crisis, expectations of which have been strengthened by a recent report by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), a government think tank. Nekrasov points out, however, that CMASF does not consider any of the conditions for a banking crisis to have materialized yet. Without ruling out such a scenario in principle, he suggests it is unlikely for at least several years. Moreover, the Central Bank retains substantial resources to preempt one.
Finally, the impact of sanctions on the oil and gas sector should not be overstated, Nekrasov and his CASE colleagues argue. First, the most significant damage has already been done: EU sanctions on Russian oil have, according to CASE estimates, reduced GDP by around 0.5%. Second, the percentage of oil and gas revenues in the federal budget is declining, now at roughly 25%. A sharp drop in these revenues would take place only if China or India were to join the sanctions regime – a highly unlikely event. In addition, CASE notes that technological developments in recent years have made oil prices significantly more stable, with prices rarely falling below $55 per barrel for extended periods.
Russia’s budget is running a deficit, but, as Nekrasov notes, the government has managed to finance it by borrowing in the market. Banks are reporting strong earnings and are fully capable of purchasing sufficient volumes of government bonds to cover the deficit. Overall, public debt remains relatively low – at around 20% of GDP – and could rise to a still comparatively moderate 40%.
One argument frequently cited in support of the more pessimistic outlook is the possibility of a banking crisis, expectations of which have been strengthened by a recent report by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), a government think tank. Nekrasov points out, however, that CMASF does not consider any of the conditions for a banking crisis to have materialized yet. Without ruling out such a scenario in principle, he suggests it is unlikely for at least several years. Moreover, the Central Bank retains substantial resources to preempt one.
Finally, the impact of sanctions on the oil and gas sector should not be overstated, Nekrasov and his CASE colleagues argue. First, the most significant damage has already been done: EU sanctions on Russian oil have, according to CASE estimates, reduced GDP by around 0.5%. Second, the percentage of oil and gas revenues in the federal budget is declining, now at roughly 25%. A sharp drop in these revenues would take place only if China or India were to join the sanctions regime – a highly unlikely event. In addition, CASE notes that technological developments in recent years have made oil prices significantly more stable, with prices rarely falling below $55 per barrel for extended periods.
Konstantin Ilinskiy / Unsplash
What do the skeptics say?
Skeptics of such a moderate outlook – chief among them Lipsits – argue that the claims about the Russian economy’s resilience are based on “linear thinking” and “faulty analogies” that fail to account for the fundamental degradation of the financial system. They point out that, unlike the 2009 crisis – when Russia’s reserves were huge and European markets open – the current situation is characterized by the depletion of liquid resources and a concealed fiscal implosion.
The “market-based” nature of government borrowing, through ruble-denominated bonds called OFZs, is described by skeptics as a “brazen falsehood.” They say almost the entire increase in public debt last year was financed by quietly increasing the amount of money in the economy: the Central Bank prints money and provides it to commercial banks through repo operations so they can purchase bonds issued by the Finance Ministry (OFZs). This effectively amounts to direct lending to the government by the Central Bank, leading to a doubling of the money supply amid stagnant production and ultimately inflation. The result of such a policy, experts argue, will inevitably be a confiscatory monetary reform in the future.
The skeptics note that the Russian government has virtually no accessible reserves left to finance the deficit. A significant portion of the National Wealth Fund has already been spent on supporting banks and state-owned companies (e.g., by injecting capital into VTB, Russian Railways and Aeroflot), meaning it now holds more assets that the state is effectively unable to sell. The truly liquid portion of the NWF has more than halved from RUB8.3 trillion in 2021 to roughly RUB4.0 trillion at the start of 2026, enough to cover only about six months of the consolidated budget deficit.
The situation with government debt is described as “distilled madness” owing to the extremely high interest rates, of 15-16% and higher. Debt servicing costs are already at RUB3 trillion per year, or around 9% of total expenditures, and in 2026 will inevitably exceed spending on national security. The skeptics note that Russia has already surpassed Japan, Germany and China in terms of debt servicing costs, with severe fiscal stress on the government.
Nekrasov and CASE are also criticized for underestimating the role of the oil and gas sector in the Russian economy. Under Russia’s budget accounting, only two categories of revenue – the mineral extraction tax and export duties – are classified as oil and gas. Excluded are profit taxes paid by oil companies, VAT across the entire oil and petroleum products trade, personal income tax paid by workers in the sector, and excise duties on gasoline and diesel. The oil sector is becoming unprofitable. Because Russia lags technologically, production costs at mature fields have risen to $40-45 per barrel. Meanwhile, China is dictating prices with discounts of up to $25 per barrel. Russia has lost its leading role in the market and has become a “price taker,” dependent on Beijing’s decisions.
Skeptics of such a moderate outlook – chief among them Lipsits – argue that the claims about the Russian economy’s resilience are based on “linear thinking” and “faulty analogies” that fail to account for the fundamental degradation of the financial system. They point out that, unlike the 2009 crisis – when Russia’s reserves were huge and European markets open – the current situation is characterized by the depletion of liquid resources and a concealed fiscal implosion.
The “market-based” nature of government borrowing, through ruble-denominated bonds called OFZs, is described by skeptics as a “brazen falsehood.” They say almost the entire increase in public debt last year was financed by quietly increasing the amount of money in the economy: the Central Bank prints money and provides it to commercial banks through repo operations so they can purchase bonds issued by the Finance Ministry (OFZs). This effectively amounts to direct lending to the government by the Central Bank, leading to a doubling of the money supply amid stagnant production and ultimately inflation. The result of such a policy, experts argue, will inevitably be a confiscatory monetary reform in the future.
The skeptics note that the Russian government has virtually no accessible reserves left to finance the deficit. A significant portion of the National Wealth Fund has already been spent on supporting banks and state-owned companies (e.g., by injecting capital into VTB, Russian Railways and Aeroflot), meaning it now holds more assets that the state is effectively unable to sell. The truly liquid portion of the NWF has more than halved from RUB8.3 trillion in 2021 to roughly RUB4.0 trillion at the start of 2026, enough to cover only about six months of the consolidated budget deficit.
The situation with government debt is described as “distilled madness” owing to the extremely high interest rates, of 15-16% and higher. Debt servicing costs are already at RUB3 trillion per year, or around 9% of total expenditures, and in 2026 will inevitably exceed spending on national security. The skeptics note that Russia has already surpassed Japan, Germany and China in terms of debt servicing costs, with severe fiscal stress on the government.
Nekrasov and CASE are also criticized for underestimating the role of the oil and gas sector in the Russian economy. Under Russia’s budget accounting, only two categories of revenue – the mineral extraction tax and export duties – are classified as oil and gas. Excluded are profit taxes paid by oil companies, VAT across the entire oil and petroleum products trade, personal income tax paid by workers in the sector, and excise duties on gasoline and diesel. The oil sector is becoming unprofitable. Because Russia lags technologically, production costs at mature fields have risen to $40-45 per barrel. Meanwhile, China is dictating prices with discounts of up to $25 per barrel. Russia has lost its leading role in the market and has become a “price taker,” dependent on Beijing’s decisions.
maks_d / Unsplash
Where do both camps agree?
Despite their sharp disagreements over the likelihood of an imminent collapse in the Russian economy, the camps generally share similar views on the long-term trajectory of the Russian economy. There is a consensus that the current model is “mortgaging the country’s future,” with resources being redistributed from civilian consumption and investment toward the military-industrial complex.
A key point of agreement is the demographic crisis facing Russia. Both camps recognize that an aging and shrinking workforce will deprive the economy of the ability to expand by way of extensive growth. The economists also agree on the risks of Russia’s technological lag: isolation from Western technology and managerial know-how is leading to losses in production that cannot be fully offset by the Kremlin’s pivot to the East.
In terms of foreign trade, both camps acknowledge Russia’s critical and asymmetrical dependence on China. Russia is increasingly becoming a supplier of raw materials to China and a market for Chinese goods, without receiving advanced technology in return, while Beijing can dictate prices and the terms of cooperation.
Regarding the Russian financial system, the economists are united in the view that political logic has definitively taken precedence over economic rationality. This is reflected in the degradation of market institutions, erosion of property rights and growing influence of the siloviki in decision-making. Thus, the debate around the Russian economy is not where it is headed – both camps say things will get worse – but how much resilience the system has left and when it will face a crisis.
Despite their sharp disagreements over the likelihood of an imminent collapse in the Russian economy, the camps generally share similar views on the long-term trajectory of the Russian economy. There is a consensus that the current model is “mortgaging the country’s future,” with resources being redistributed from civilian consumption and investment toward the military-industrial complex.
A key point of agreement is the demographic crisis facing Russia. Both camps recognize that an aging and shrinking workforce will deprive the economy of the ability to expand by way of extensive growth. The economists also agree on the risks of Russia’s technological lag: isolation from Western technology and managerial know-how is leading to losses in production that cannot be fully offset by the Kremlin’s pivot to the East.
In terms of foreign trade, both camps acknowledge Russia’s critical and asymmetrical dependence on China. Russia is increasingly becoming a supplier of raw materials to China and a market for Chinese goods, without receiving advanced technology in return, while Beijing can dictate prices and the terms of cooperation.
Regarding the Russian financial system, the economists are united in the view that political logic has definitively taken precedence over economic rationality. This is reflected in the degradation of market institutions, erosion of property rights and growing influence of the siloviki in decision-making. Thus, the debate around the Russian economy is not where it is headed – both camps say things will get worse – but how much resilience the system has left and when it will face a crisis.
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