The Kremlin's recent economic policies indicate that the Russian economy will likely face significant challenges in 2025 and that Russian President Vladimir Putin is worried about Russia's economic stability in the long term. The Kremlin recently adopted several policies that aim to cut Russian government spending on wounded Russian servicemen, combat inflation, and address long-term demographic problems such as low birth rates and labor shortages. These policies demonstrate that the Russian economy is not as resilient to Western sanctions, monetary constraints, and the cost of the war effort as the Russian government postures. These policies also demonstrate that the Kremlin will not be able to sustain the protracted war effort for years and decades to come while shielding Russian society from economic challenges. Consistent Western and international support for Ukraine's resistance on the battlefield will further exacerbate Russia's economic problems.
Putin modified compensation promised for Russian servicemen wounded while fighting in Ukraine — a clear indicator that the Kremlin is trying to cut the mounting short- and long-term costs of the war and restore balance to the Russian economy. Putin controversially changed Russian policy guaranteeing a one-time payment of three million rubles ($30,124) to all Russian servicemen who have been wounded in combat in Ukraine since March 2022.[1] Putin signed a decree on November 13 that restricted the one-time payments of three million rubles only to servicemen who sustained serious injuries in combat, only offering one million rubles ($10,152) to lightly wounded servicemen, and 100,000 rubles ($1,015) to servicemen who sustained minor injuries on the battlefield.[2] Putin's decree generated significant backlash from the Russian ultranationalist milblogger community, and Putin attempted to placate this community on November 14 by increasing the one-time payments to four million rubles ($40,136), but still only for Russian servicemen who sustain severe battlefield injuries that result in a disability.[3] A Russian milblogger noted that Putin's authorization to increase compensation for disabled servicemen does not alter the fact that the Kremlin is reneging on promises to thousands of Russian servicemen who joined the Russian military solely due to large financial incentives.[4] The milblogger added that Russian military medical commissions are also becoming increasingly — and often deliberately unfairly — selective in diagnosing Russian servicemen with severe injuries.
Putin originally introduced the policy offering all wounded Russian servicemen three million rubles to incentivize military recruitment after he had decided against declaring general mobilization in Spring 2022.[5] Financial incentives became the key pillar of the Russian military's recruitment campaign and personnel retention efforts over the past nearly three years, and the reversal of such incentives indicates that the system is becoming economically unsustainable for the Kremlin. ISW notably assessed in Summer 2022 that the Kremlin's reliance on high financial incentives for force generation was committing Russia to short- and long-term financial responsibilities to thousands of Russians, such as paying veterans pensions, compensations to families of deceased servicemen, and other state benefits.[6]
The Kremlin's efforts to combat inflation and high interest rates are also reportedly impacting the expansion of the Russian defense industrial base (DIB) and prospects for mobilizing the economy. The Russian Central Bank recently raised the key interest rate to 21 percent on October 25, which reportedly prompted discontent among Russian politicians, DIB CEOs, and elites. Kremlin-affiliated Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP) reported that the Russian economy is “effectively facing the threat of stagflation - simultaneous stagnation or even recession and high inflation” because of the Central Bank's tight monetary policy.[7] TsMAKP assessed that if the Russian Central Bank maintains the key interest rate at around 20 percent until mid-2025 then the composite leading indicator (CLI) for recession will exceed its critical threshold. The Ukrainian Foreign Intelligence Service similarly reported that the number of loans with a dynamic rate — which depends on a discount from the Central Bank — increased from 44 percent in late 2023 to 53 percent in late 2024.[8] The Ukrainian Foreign Intelligence Service added that high interest rates may create a shock and a decline in production, which can result in bankruptcies and corporate defaults. A Kremlin insider source claimed that the Central Bank's tight monetary policy is restraining the Russian DIB’s pace of development in the long term and has already complicated several Russian export projects, despite the fact that it had not yet directly impacted Russian military-technological support for the Russian war effort.[9]
The Russian DIB is unlikely to match the production rate necessary to replace Russian weapons losses under these monetary policies. Foreign Policy (FP), citing OSINT analysts, reported that Russia has been losing around 320 tank and artillery cannon barrels per month but can only produce 20 per month.[10] FP reported that Russia will likely run out of cannon barrels in 2025 due to battlefield losses, dwindling Soviet stocks, and sanctions impacts. FP also cited OSINT estimates that Russian forces have lost at least 4,955 infantry fighting vehicles (IFVs) since February 2022 — about 155 IFVs per month. FP reported that Russia can only produce about 17 IFVs monthly or 200 annually. FP assessed that the Central Bank's policy of raising interest rates has made it difficult for nondefense companies to raise capital through loans, which is shrinking the civilian economy and may lead to significant post-war recession as returning Russian veterans will have a harder time finding employment.
https://www.understandingwar.org/backgrounder/russian-offensive-campaign-assessment-november-14-2024
Russian Offensive Campaign Assessment, November 15, 2024
Abkhazian oppositionists protested an agreement between the de facto government of Georgia’s Abkhazia region with Russia aimed at enhancing Russian investors’ rights in Abkhazia on November 15. Protesters in Abkhazia stormed the de facto parliament of the Russian-occupied and Kremlin-backed separatist region of Georgia, demanding the dismissal of a proposed investment agreement with Russia that would grant Russian legal entities property ownership rights in Abkhazia and Russian developers preferential tax exemptions.[7] Critics of the proposed legislation argued that the deal would inflate property prices, empower oligarchs, and undermine Abkhazia’s desired autonomy.[8] The protesters, waving Russian flags, clarified their discontent was not directed at “fraternal” Russia but at the current Abkhaz government, citing the need to protect Abkhazia’s “national interests.”[9] The protesters also called for the resignation of the current de facto Abkhazian President Aslan Bzhania.[10] The protests forced the Abkhaz parliament to postpone the vote on the agreement, with opposition leaders later announcing plans to present their demands to the current de facto Abkhaz leadership.[11]
Russian Ministry of Foreign Affairs (MFA) Spokesperson Maria Zakharova urged Russians to avoid travel to Abkhazia, citing safety concerns, and warned that the crisis could deter future economic investments in Abkhazia.[12] The Russian information space reacted by calling the protesters ungrateful, and some milbloggers attributed the protests to external actors including Turkey, while others warned that the Abkhaz economy largely relies on Russia.[13]
https://www.understandingwar.org/backgrounder/russian-offensive-campaign-assessment-november-15-2024