Russia

Russia’s fiscal position is under pressure from rising military expenditures and declining energy revenues, with the budget deficit expected to persist near 0.5% of GDP. The government’s decision to raise VAT in 2026 aims to shore up revenues but may dampen private demand. Public debt remains low (around 20% of GDP), and external indebtedness is limited, reducing immediate solvency risks. However, the banking sector’s stability is increasingly reliant on state support and capital controls. Insolvency data is scarce, but anecdotal evidence suggests rising stress in sectors exposed to export markets and technology shortages. The risk of a financial crisis remains contained in the short term, but persistent deficits, inflationary pressures and restricted access to international capital markets could erode confidence over time, especially if oil prices fall or sanctions and trade restrictions intensify. 

Political risk remains very high and is unlikely to abate as long as the Ukraine conflict and sanctions persist. President Putin’s regime has consolidated power, suppressing dissent and ensuring short-term stability. However, succession uncertainties, elite discontent and potential shocks from the war or prolonged economic downturn could destabilize the system. The risk of internal unrest or elite revolt rises if economic conditions deteriorate or military setbacks occur. Historically, periods of relative economic prosperity have led to street demonstrations calling for greater pluralism (e.g., 2011-2013), while periods of crisis and war have led to more drastic measures in terms of both the transfer of power and repression, often with even more dramatic consequences for the economy as a whole. On the international arena, Russia’s relations with the West are set to remain strained, with deeper integration into alternative blocs unlikely to offset isolation from Western markets. The outlook is for continued authoritarianism, limited reform and elevated uncertainty through 2027.