Russian Economy Collapsing While Officials Enrich Themselves

Russian Economy Collapsing While Officials Enrich Themselves

Executive Summary:

• Russia’s economy is in sharp decline because of the Kremlin’s war against Ukraine, with nearly 30 percent of companies unprofitable in 2025 and losses of around 7.5 trillion rubles ($100 billion). 
• Regional governments face crushing financial pressure as Moscow extracts their tax revenue, imposes military recruitment quotas, and demands the regions pay high signing bonuses to soldiers. Critical infrastructure and civilian projects are neglected, while military production thrives, further deepening regional economic disparities.
• Government officials enrich themselves while ordinary citizens and small businesses suffer under steep tax increases. Transparency is suppressed, salaries for governors and federal servants rise, and public services remain underfunded, heightening social inequality and fueling potential unrest.

An economic inversion is taking place in Russia. Independent experts have calculated that the Russian economy has suffered a record-breaking collapse over the past year. Almost 30 percent of companies in Russia were unprofitable in 2025, and they have lost approximately 7.5 trillion rubles (approximately $100 billion) (Radio Svoboda, February 13). Russia’s war against Ukraine is the main reason for these unprecedented losses. Much of the economy has transitioned to supporting Russia’s military-industrial complex (see EDM, January 15, 2025). As the war enters its fifth year, Russia’s economy will likely continue down this path.

The war effort requires colossal expenditures, which leaves other areas in need of funds in Russia, including critical infrastructure projects, largely ignored. For example, the unbuilt bridge across the Lena River in the Sakha Republic/Yakutia would cost the equivalent of what Russia spends on only four days of this war, while the also unbuilt Krasnoyarsk metro would only cost three days of war (see EDM, February 5; Sibir.Realii, February 26, 2024). 

Russia’s war against Ukraine resulted in the largest global sanctions on the Russian economy, particularly on its dominant raw materials and oil and gas industries (see EDM, August 20, 2024, February 17, 2025, February 18). If oil companies previously supported the state, now the state is forced to support oil companies that have fallen under Western sanctions. Official data from the Russian Ministry of Finance show that the country’s oil and gas revenues fell by half year-on-year (Kommersant, February 5).

Russian regions ended 2025 with a record budget deficit of 1.5 trillion rubles (over $20 billion). Amid declining local tax revenues—Moscow traditionally keeps most regional taxes in Russia—and rising war costs, the gap between revenues and expenditures was approximately five times larger than the Finance Ministry’s forecast. An anonymous Russian economist told media outlet Vot Tak: 

The regions have suffered a significant setback due to the country’s overall economic decline. On the one hand, no one has relieved them of their social obligations, but on the other, they are obligated to finance the war in one form or another. They have serious problems (Vot Tak, February 13).

Russia’s Federal State Statistics Service Rosstat claims that household incomes are growing, rising by 7.4 percent in 2025 (Rosstat, February 6). Independent economists, however, criticize this official optimism, as inflation is eroding all this formal growth (Vot Tak, February 13).

Smaller Russian regions suffer the most from economic problems. In Moscow and St. Petersburg, officials strive to maintain an acceptable standard of living (see EDM, February 12; Vot Tak, February 13). This is due both to the traditional centralization of the Russian economy and to the government’s fears of mass protests in the most populated cities, which historically often lead to revolutions.

Moscow takes its own economic profits from the regions while forcing local governments to recruit contract soldiers and pay them colossal signing bonuses by local standards (see EDM, October 21, 2025). The center has almost nothing left for the modern development of its regions, let alone for the necessary repairs to communal infrastructure. Only enterprises producing military equipment in various regions are doing relatively well (see EDM, June 1, 2025). Moscow is willing to support them. For example, while there is a large plant producing Iranian drones in Yelabuga, Tatarstan, that has been relatively successful, it contributes nothing to the development of Tatarstan’s civilian economy (see EDM, October 16, 2024).

Russian President Vladimir Putin’s November 2025 tax reforms exacerbated the situation further. The reforms went as far as to impose taxes on very small businesses (Vot Tak, February 13). Previously, businesses were subject to taxes only when their profits exceeded 60 million rubles per year (approximately $800,000). Now, this reform is effectively destroying regional small businesses—many small businesses, such as private cafes, shops, and hair salons, will simply be unable to pay these sharply increased taxes and will close. Moscow wants to replenish the state budget by any means necessary, which is being spent as much as possible on the war. The interests of ordinary citizens, including small businesses, are of no concern to them.

Russian officials have classified their own income data. Rosstat has stopped publishing this information, and it has even suppressed statistics on the number of officials (The Moscow Times, February 13). Russian officials seem to want to hide information from their own people, whom they claim to faithfully serve. This secrecy extends to all federal and municipal servants. Officials have waived for themselves the obligation to file annual tax returns, while ordinary citizens are required to do so, and even face higher taxes (DW, December 28, 2025). 

In 2026, a dramatic increase in Russian governors’ salaries is also planned, bringing them in line with government officials, who currently receive salaries exceeding 1,000,000 rubles monthly (approximately $12,900) (Telegram/@faridaily24, April 1, 2025). Rosstat, however, conceals data on the salaries of social workers, doctors, teachers, educators, scientists, among others. This was likely done to avoid the impression of too strong a contrast with officials’ salaries.

It is unlikely that Russia, a militaristic and repressive empire with such social contrasts, will have a sustainable future if it continues down this path. History teaches us that in such situations, civil and regional protests become inevitable. The current record-breaking collapse of the Russian economy will only hasten them.