The Russian Center for Macroeconomic Analysis has predicted a wave of business bankruptcies in Russia, pointing to the high interest rates imposed by the Central Bank of Russia to control inflation as the main cause. However, this study is partly biased, as the center’s director, Dmitry Belousov, is the brother of Andrey Belousov, Russia’s Minister of Defense, a Soviet-style economist and advisor to Vladimir Putin who advocates for stronger state control over the economy.
In recent months, the Center for Macroeconomic Analysis and Short-Term Forecasting (Cemac), led by the Belousov brothers, has become a key pressure group opposing the monetary policy of Elvira Nabiullina, the Central Bank governor. To combat inflation—driven mainly by excessive military spending—Nabiullina has sharply increased the base interest rate from 7.5% in July 2023 to 21%, the highest in over 20 years.
This high cost of borrowing is causing serious difficulties for Russian businesses, which are struggling with rising loan repayment costs. At the same time, inflation continues to rise, with consumer prices increasing by over 11% in 2024, the highest rate in nine years. According to a January report from the Central Bank, food inflation reached 22.9% in December, nearly three times higher than in December 2023. Even large corporations owned by Kremlin-linked oligarchs are feeling the strain.
Cemac analysts highlight that businesses, facing rising loan costs, are struggling to pay suppliers and are seeing their profit margins shrink. As a result, many firms prefer short-term deposits, which offer better returns than investing in production. Major state-owned companies like Gazprom (gas and oil), Rosneft (oil), RZD (railways), and Rostec (defense contractors) have cut their investment plans for 2025 due to excessive financing costs.
At current interest rates, many businesses have either become unprofitable or earn less than Russian government bonds, making borrowing for expansion financially pointless. Cemac estimates that over 20% of manufacturing firms are at risk due to debt levels, spending two-thirds of their pre-tax profits on loan repayments. Industries most affected include machinery and car manufacturing, metallurgy, leather processing, and wood production.
Some sectors, like construction and coal mining, are in an even worse position, with operating profits lower than financing costs. Cemac had previously warned that 2025 could set a new record for corporate debt burdens, and recent data confirms this risk.
Despite its political bias—favoring big business and defense contractors—Cemac is known for its reliable industrial sector data. Russian oligarchs and Economic Development Minister Maxim Reshetnikov are alarmed by these findings and are pushing Nabiullina to lower interest rates. However, this has sparked a major conflict within Putin’s inner circle, as cutting rates could trigger hyperinflation. The real root of Russia’s economic crisis—Putin’s insistence on continuing the war—remains an unspoken issue, even among respected technocrats like Belousov and Nabiullina.
The next Central Bank meeting to set interest rates is on February 14. In the last meeting in December, Nabiullina resisted pressure and kept rates at 21%. Her next move will likely depend on yet-to-be-released December loan data. The imbalance between inflation and high borrowing costs is one of the biggest economic challenges facing Russia—and, by extension, the future of the war in Ukraine.
Another Major Problem for Russia in 2025
Beyond the debt crisis and inflation, Russia faces another serious financial challenge: the depletion of its National Wealth Fund. By 2025, the country will have exhausted most of the remaining funds, leaving fewer financial resources to support the economy and sustain military spending.
Andrea Bodei