Country Risk Report

Russia

Last update – September 2026

Country rating

HIGH RISK FOR ENTERPRISE

Economic risk

Business environment risk

Political risk

Commercial risk

Financing risk

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Form of state	Federation
Head of state	Vladimir Vladimirovich PUTIN (President)
Next elections	2026, legislative

Strengths & weaknesses

Vast energy and mineral reserves continue to generate export revenues, with oil price spikes providing short-term fiscal relief
Low public debt (~20% of GDP) and limited external indebtedness reduce solvency risk
Demonstrated adaptability to sanctions through trade rerouting toward China, India and alternative payment systems

War economy hitting structural limits: budget deficit exceeded its full-year target in Q1, sovereign wealth fund nearly depleted (1.8% of GDP vs 6.5% pre-war)
Unprecedented labor shortage (2.5mn workers lost since 2022, unemployment at 2.1%) constrains both military recruitment and civilian production
Corporate debt distress at 2008-09 levels, with overdue payables at 10.3% of total receivables and bond defaults accelerating

Cyclical risks

Growth decelerated sharply to +1% in 2025 (from +4.1% in 2024) as the war economy's stimulus peaked and tight monetary policy took hold. The outlook for 2026 is stagnation: The Central Bank of Russia (CBR) itself downgraded its forecast to 0-1% at its July meeting. The CBR began a cautious easing cycle, cutting the key rate from 21% (the December 2024 peak) to 14% by late July, but the pace remains constrained by above-target inflation and persistent supply-side bottlenecks.

The economy's binding constraint has shifted from capital to labor. With unemployment at a record 2.1% and an estimated 2.5mn workers lost since the full-scale invasion (mobilization, emigration, casualties), the civilian economy is operating under an acute production ceiling. Defense spending, at approximately 7.8% of GDP in 2025, continues to crowd out private investment and civilian manufacturing, diverting both financial and human resources toward military-industrial output. The ruble, which was the world's best-performing currency in Q1 2026 on the back of elevated oil prices and capital controls, has since weakened to ~78/USD as authorities actively purchased FX to rebuild sovereign buffers and ease exporters' margins.

Any abrupt de-escalation in Ukraine would paradoxically introduce short-term recession risk: a reduction in military output without a compensating civilian investment cycle could leave both incomes and aggregate demand materially lower.

Financing risks

The fiscal position has deteriorated far more rapidly than budgeted. The federal deficit reached 6trn rubles (USD83.5bn) in January-May 2026, exceeding the full-year target of 3.8trn rubles by 60%. Oil and gas revenues fell -30% y/y over the same period, while expenditures surged +17%, driven by defense and social commitments. To compensate, the government raised VAT from 20% to 22% – a measure that partially stabilizes revenues but suppresses private demand and feeds inflation.

The sovereign wealth fund's liquid assets have shrunk from 6.5% of GDP at the start of the war to just 1.8% in April 2026, leaving minimal buffer for future shocks. The government has so far avoided a formal fiscal crisis by drawing on this fund and maintaining access to domestic bond markets, but the trajectory is unsustainable without either a durable oil price above USD 80/bbl or a meaningful reduction in military expenditure.

Corporate distress is escalating to systemic levels. Bond defaults surged from 11 in 2024 to 24 in 2025, with 11 already recorded in Q1 2026 alone. Overdue corporate payables rose +18% y/y to 7 trillion rubles, with the overdue share reaching 10.3% of total receivables – the worst since the 2008-09 global financial crisis. Business liquidations exceeded new registrations by 26% in 2025, and aggregate corporate net profit fell -7.7% y/y. On the household side, a record 636,000 individuals declared bankruptcy in 2025 (+30% y/y), rising a further +13.7% in Q1 2026. The banking sector remains state-supported and nominally well-capitalized, but credit quality is eroding under the surface, particularly in sectors exposed to high refinancing costs and declining consumer demand.

Structural business environment risks

Russia's structural trajectory is defined by a single dynamic: the progressive exhaustion of resources (fiscal, human, institutional) in service of a war that has consumed the economy's productive capacity. The war economy may have reached a "structural limit," with every macroeconomic lever (rates, reserves, labor, fiscal space) now operating near or beyond sustainable thresholds.

Labor is the most critical bottleneck. The economy needs an estimated 10.9mn new workers by 2030 to return to equilibrium, yet demographic decline (fertility at 1.37, population projected to fall to 130mn by 2046), continued emigration of skilled workers and war casualties make this target unattainable without radical immigration reform. Military recruitment fell -20% in Q1 2026 despite extreme incentive packages (debt-clearance bonuses of USD 140,000), indicating that even the defense sector is now competing for a shrinking pool.

Technology constraints imposed by sanctions continue to limit productivity and innovation. The pivot toward China has partially compensated for lost Western inputs, but creates asymmetric dependency: China supplies ~40% of Russia's machinery imports and controls critical technology access without offering the competitive diversity or IP transfer that Western engagement previously provided. Data restrictions, regulatory opacity and unpredictable policy shifts compound operational risks for both domestic firms and remaining foreign investors.

Political risks

Political risk remains structurally elevated with no credible pathway to reduction in the near term. The regime's stability hinges on three pillars – oil revenues, social contract (wage growth and employment) and information control – all of which are under simultaneous pressure as the economy stagnates and fiscal buffers deplete.

Peace negotiations have produced no substantive breakthrough. Trilateral talks (US-Ukraine-Russia) in Abu Dhabi and Geneva in early 2026 ended without agreement on territorial issues, and were subsequently postponed indefinitely following the Iran war. Brief ceasefires (Easter, Victory Day) collapsed within hours. The US Senate advanced the Lindsey Graham Sanctioning Russia Act in late July (86-12 vote), which would authorize 500% tariffs on Russian imports and penalties on purchasers of Russian energy – signaling that sanctions architecture continues to tighten.

Domestically, the system remains tightly controlled, with succession risk structurally unresolved. Social discontent is managed through wage growth in defense and public sectors, but the ability to sustain this model narrows as fiscal space compresses. Industrial unrest in non-defense sectors, where real incomes are stagnating or declining, represents a latent risk that could escalate if the economy contracts further. The most dangerous scenario for institutional stability remains not prolonged war, to which the system has adapted, but rather an abrupt transition to peace, which would simultaneously remove the fiscal engine, the narrative justification for austerity and the employment absorption mechanism that military spending currently provides.

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