Russia’s War Economy Strains Under Labor Shortage and Mounting Costs - ISW
Russia’s costly efforts to sustain its war machine through inflated military payments and rapid defense sector expansion are pushing the country toward economic destabilization, analysts warn — even as the Kremlin insists the economy remains strong, The Gaze reports, citing a recent ISW report.
To maintain force levels amid high battlefield casualties, the Kremlin has dramatically raised one-time payments to military recruits. Simultaneously, it’s attempting to scale up its defense industrial base (DIB), creating intense competition for labor between the military, defense factories, and the civilian economy. This wage race is driving up service-sector prices and stifling broader economic growth.
The resulting labor shortage and rising wages are contributing to inflation and weakening Russia’s long-term economic prospects. Without launching an unpopular mass mobilization, Russia cannot replace its battlefield losses indefinitely, nor can it afford to keep up the rising cost of recruitment bonuses.
“Russia is burning the candle at both ends,” ISW notes, citing the Kremlin’s attempts to stimulate short-term growth through looser monetary policy while pouring unprecedented sums into the war effort.
Meanwhile, signs of strain are emerging in Russia’s banking sector. Bloomberg reports that top executives at major Russian banks are privately discussing the need for a state bailout due to a surge in non-performing loans. Some systemically important lenders may be on track to hit 6–7% in unpaid debt by 2026, up from 4% now.
Despite official reassurances from Russian Central Bank Chair Elvira Nabiullina, Moscow’s reluctance to bail out major banks could trigger liquidity problems or even bank failures, undermining President Vladimir Putin’s narrative that the economy is weathering war and sanctions without crisis.
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