It has been asserted that Russia deteriorating economy faces a potential “massive credit crunch” as the rapid sell-off in bonds continues.
Due to a lack of buyers, the Kremlin had to cancel a $5 billion auction of government bonds last week.
In the absence of higher yields, private investors and banks appear reluctant to acquire additional debt, which may ultimately result in skyrocketing government borrowing costs.
The Russian government bond index (RGBI) then fell to its lowest levels since Western sanctions were imposed following the invasion of Ukraine in 2022.
The fact that bonds issued by construction companies have experienced substantial losses over the past few days is yet another indication of an investor lack of faith.
The bonds of Samolet, Brusnika, and Strana Development experienced the greatest decline. The nominal value of the companies’ bonds decreased by between 4% and 5%, while yields increased to between 34% and 37%.
Some Russian analysts have predicted turbulent times for the Kremlin as a result of the bond market’s collapse.
In a post to his X social media account, Jay, a regular pro-Ukrainian blogger in Kyiv, made the following observation: It is highly likely that Russian markets will experience a significant credit crash next week.
Since the full-scale Ukraine war began in February 2022, Russia’s spending on national defense has skyrocketed.
From £39 billion in 2021 to a staggering £93 billion in 2024, it has more than doubled in just three years. Russia is having trouble keeping its finances in check as a result of the skyrocketing military expenditures.
Russia’s federal budget had a surplus of 0.4% of GDP prior to the invasion in 2021. However, a deficit of 1.1 percent of GDP is anticipated for 2024.
At Kyiv’s International Institute of Business, finance and economics professor Alexander Mertens warned that Putin faces a serious economic dilemma.
He wrote the following in an Atlantic Council article: At the moment, it seems as though he intends to continue the war indefinitely in the hopes of outlasting the West and exhausting Ukraine.
“Alternatively, he might try to move toward some kind of settlement. However, there is a very real possibility that either choice will plunge Russia into a severe economic crisis.
The Kremlin is frantically trying to procure new butter supplies to avoid a shortage of essential food items, which is contributing to the volatility in Russian financial markets.
Since the beginning of 2024, prices have increased by more than 23% due to a lack of butter.
At the end of October, the Kremlin began importing butter from Turkey and the United Arab Emirates out of a growing desperation.
It has now requested that the Eurasian Economic Commission grant Russia a license to import 30,000 tonnes of butter duty-free for a period of six months.
Additionally, Pakistan has agreed to purchase chickpeas from Russia in exchange for mandarin oranges.