Russian economy: the wealth fund will run out this year, paralyzing the war effort

• Russia could run out of cash reserves as early as this fall, according to a European economist.
• The country’s liquid reserves fell to $31 billion, from $117 billion in 2021.
• Limited funds could hamper Russia’s continued war efforts.

Russia faces a crucial challenge in its war effort in 2025: the country is rapidly running out of cash, and its financial reserves could run out before the end of the year, according to estimates by a European economist.

Anders Åslund, a Swedish economist and former member of the Atlantic Council, believes that the liquid reserves of Russia’s National Wealth Fund could potentially be exhausted by the fall of this year.

That risks disrupting the country’s military efforts in 2025, he said, given how much Russia has relied on its wealth fund in recent years.

The wealth fund’s liquid reserves fell from $117 billion in 2021 to $31 billion at the end of November, Åslund said.

Yet, according to its 2025 budget, Russia is on track to spend a record $130.5 billion on defense this year.

“The most critical shortage, however, is fiscal financing, as Russia’s last liquid reserves are at risk of running out in the fall of 2025,” Åslund wrote in an op-ed for Project Syndicate on Tuesday. “Budget cuts will then become necessary. Meanwhile, the war economy may also require price controls and rationing – the old Soviet sins. As the risk of a financial crash increases, the Russian economy in peril is about to impose serious constraints on Putin’s war.

The rapid decline of Russian wealth is partly due to Western sanctions, which have prevented Russia from borrowing from other countries. The country’s total external debt has collapsed over the past decade, with foreign borrowing falling from $729 billion in 2023 to around $293 billion in September 2024, Åslund noted.

Russia’s limited ability to finance the war is also bad news for the health of its economy, which is beset by myriad other problems.

The situation is also complicated by other problems affecting its economy, Åslund said. He pointed to high inflation, the falling value of the Russian currency and the country’s severe shortage of workers, all factors that economists say could harm Russia’s long-term growth prospects.

“Russian President Vladimir Putin frequently boasts about the strength of his country’s economy, saying that Western sanctions only strengthen it (while at the same time demanding that they be lifted). In fact, the ” “stagflation” – inflation combined with minimal growth – is a reality coming to Russia,” Åslund said.

Other experts have also issued grim forecasts for the Russian economy, with some pointing out that economic weakness could interfere with Russia’s ability to continue its war. At this point, Moscow does not appear to be able to afford to win or lose the war, according to Renaud Foucart, another European economist.

Meanwhile, the country’s economic problems could force an end to the conflict with Ukraine in 2025, according to another think tank researcher.