Brendan Cole is a journalist for Newsweek in London in the United Kingdom. Its target is Russia and Ukraine, specifically the war introduced through Moscow. It also covers other geopolitical spaces, adding China. Brendan joined Newsweek in 2018 from International Business Times and, as well as English, knows Russian and French. You can tap Brendan by emailing b. cole@newsweek. com or follow him on his X @BrendanmarkCole account.

Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.

Russia is financing its military spending through a shadow plan that poses a “seismically disruptive” threat to an economy already buffeted by high inflation and interest rates, according to an analysis.

Craig Kennedy, former Banquero de Inversiones from Morgan Stanley, described how the Russian State is forcing banks to factor preferential loans to the army that make the war efforts of President Vladimir Putin in Ukraine possible.

That gives the Russian economy a better bill of health, misleading experts into thinking that Putin can continue with record military spending without any adverse effects to the country’s finances, according to Kennedy.

Newsweek communicated with Russia’s Ministry of Finance, the Central Bank of Russia and Kennedy’s email to comment.

Despite the difficult sanctions, the Russian state media said there were forecasts for the expansion of the GDP of 2. 5% in 2025, however, this is in a higher inflation rate of 8. 9%, which has been seduced through of a personnel shortage and a record key interest.

In December, Putin approved a record defense budget, which puts 32. 5% of the general government expenditure by 2025, $ 126 billion, in reserve.

Kennedy’s conclusions recommend that the Russian economy can face the cave of companies and banks with their army expenses without stopping, which recommends that Western in kyiv can triumph over Moscow’s ability to celebrate a war of wear.

Kennedy said Russia has pursued a two-track strategy to finance its war, its defense budget expenditures, as well as a planned budget of similar length allowed through a law followed on Feb. 25, 2022, which obliges Russian banks to receive preferential loans to the military-related companies.

In that period, Russia has faced a 71 percent expansion in corporate debt worth $415 billion or 19.4 percent of GDP—higher than oil and gas revenues and defense budget expenditures, Kennedy said in his Navigating Russia newsletter.

That means Russia’s total war costs “far exceed” what official budget expenditures would suggest.

This understanding defense financing was harder to occupy the 2024 momentum, reverse inflation, and expand interest rates for the economy’s “real” borrowers to 21%, creating the prerequisites of situations for a systemic credit crisis,” Kennedy said.

He said preferential bank loans of up to $250 billion had been given to defense contractors, many of whom had bad credit.

This increases the increases in inflation and the interest rate and the dangers that trigger a systemic crisis and the delays in Moscow more time for war, closer will be for corporations and banks than the Russian government would be obliged to discover .

In reporting Kennedy’s findings, the Financial Times said that Putin “sits on a ticking financial time bomb of his own making” and that Kyiv’s allies must deny Moscow greater access to external funds.

“Putin has commandeered the Russian banking system, with banks required to lend to companies designated by the government at chosen, preferential terms.”

Craig Kennedy, former investment banker on Substack: “For Moscow, credit event risk—with its seismically disruptive potential—will be of far more immediate concern than slow-burn risks like declining GDP.”

Vasily Astrov, a senior economist at the Vienna Institute for Foreign Economic Studies told Newsweek, “War expenditures are a transparent budgetary duty for the state, while preferential credits are not. “And the “preferential” interest rates had been covered through the state’s pocket. “

The Russian economy continues to deal with turbulence in 2025. Economist Igor Lipsits declared in The Independent Novaya Europe that the measures of the Russian Central Bank to combat opposite to inflation, such as hiking at the key interest rate, will mean less goods and Services, upper retail value and a fall in the genuine source of income for Russians.

The key interest rate of the Central Bank of Russia is 21%, which, which was higher since the war began, has not been higher than expected in December.

Astrov said if rates stayed at manageable levels and the central bank’s decision to put its tightening policy on hold points in that direction, “I don’t think the risks to the financial stability are too high in the foreseeable future.”

Brendan Cole is a journalist for Newsweek in London in the United Kingdom. Its target is Russia and Ukraine, specifically the war introduced through Moscow. It also covers other geopolitical spaces, adding China. Brendan joined Newsweek in 2018 from International Business Times and, as well as English, knows Russian and French. You can tap Brendan by emailing b. cole@newsweek. com or follow him on his X @BrendanmarkCole account.

Brendan Cole is a Newsweek Senior News Reporter based in London, UK. His focus is Russia and Ukraine, in particular the war started by Moscow. He also covers other areas of geopolitics including China. Brendan joined Newsweek in 2018 from the International Business Times and well as English, knows Russian and French. You can get in touch with Brendan by emailing [email protected] or follow on him on his X account @brendanmarkcole.