Russian economy meltdown as Moscow burns through huge chunk of £74bn fund

Report: Russia’s War Effort Straining Military Budget

Moscow is reportedly facing significant financial challenges in sustaining its military operations in Ukraine, potentially impacting its ability to pay troops, according to a new analysis. The escalating costs associated with the ongoing conflict are rapidly depleting Russian state funds, raising questions about the long-term viability of its military spending.

Mounting Pressure to Increase Military Pay

The Institute for the Study of War (ISW) highlights increasing pressure on the Kremlin to raise military salaries, despite dwindling financial resources. Christina Harward, author of the ISW report, notes that Russia relies heavily on financial incentives to recruit volunteer soldiers. These initial payments have been substantially increased to bolster troop numbers. “Russia primarily enlists volunteer soldiers through considerable one-time payments and has been compelled to significantly augment these payments to maintain recruitment,” Harward stated.

Significant Increase in Sign-Up Bonuses

In 2024, President Vladimir Putin doubled the enlistment bonus to 400,000 rubles (£3,693) and directed regional authorities to match or exceed this amount. While these escalating financial inducements aim to attract more personnel, analysts argue this approach is unsustainable given Russia’s tightening budget. The effectiveness of these incentives in substantially expanding troop numbers is also questionable.

Limits of Financial Incentives for Recruitment

Harward observes that “The financial rewards for enlisting in military service are notably higher in numerous Russian federal subjects compared to the average Russian salary.” She suggests that further increases in financial incentives are unlikely to dramatically boost recruitment. According to the analysis, a significant segment of the Russian population motivated by the current level of state-funded incentives has likely already volunteered.

Depletion of Sovereign Wealth Fund

Recent reports from Bloomberg indicate that Russia has expended 57% of its National Welfare Fund since the commencement of the war in Ukraine. At the war’s outset, this fund held 8.9 trillion rubles (£74 billion). Liquidity within the fund decreased by 24% last year alone, falling from 3.8 trillion rubles (£35 billion) on January 1, 2025.

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Kremlin Seeks to Reduce Military Personnel Costs

Russia appears cognizant of its precarious financial situation, according to Harward. The Kremlin has reportedly initiated measures to curtail expenditure on benefits for military personnel. “The Kremlin has been attempting in recent months to decrease state expenditure on benefits for military personnel, indicating an awareness that continued high spending is untenable and cost-cutting measures are necessary,” she explained.

Economic Constraints on Russia’s Military Operations

George Barros, lead of the ISW’s Russia team, told the New York Post that Russia’s current trajectory is unsustainable beyond a 12 to 16 month timeframe. He predicts that “the laws of economics, scarce resources,” and personnel shortages will ultimately constrain Moscow’s military capabilities.

Russia’s Defense Spending Outpaces Europe

Despite these financial headwinds, reports from the International Institute for Strategic Studies reveal that Moscow’s defense spending surpasses the combined military expenditure of all European nations. The institute’s report detailed Russia’s military expenditure last year at 13.1 trillion rubles (£111 billion), representing 6.7% of its GDP. This figure is more than 40% higher than that of 2023, underscoring the immense financial burden of its ongoing military endeavors.