Russia has raised more than £11billion by issuing debt to investors as the war in Ukraine continues to take a punishing toll on the country’s finances.
Moscow issued £11.4billion worth of debt – effectively selling IOU notes – at the weekend, Britain’s MoD said, in the single-largest sale of its kind in Russian history.
It comes against the backdrop of a forecast 40 per cent increase in military spending next year amid the Ukraine war, with money likely going towards plugging that hole.
The size of the auction likely indicates that Russia is keen to raise as much cash as possible before conditions worsen and the cost goes up, British intelligence added.
Vladimir Putin is almost into the tenth month of fighting in Ukraine and his country is struggling under the weight of foreign sanctions.
Last week, the country’s economy officially entered recession after shrinking by 4.1 per cent in the second quarter of this year, followed by a 4 per cent fall in Q3.
Hundreds of large companies have fled the country or refused to do business there in the wake of the invasion, and its exports have been decimated.
Sales of lucrative oil and gas – prices for which shot up as the war broke out – have kept the country afloat this year, but are now largely under embargo by the US and EU with revenues expected to shrink in 2023.
Russia’s economy is now expected to fall by 4.6 per cent over the course of the year, according to Consensus Economics, marking its second recession in three years.
The fall is half as bad as had been earlier predicted, but unlike the Covid pandemic recession the path out of it is less clear.
Putin has called for the economy to be put on a war footing to supply troops at the frontline, and has turned to the likes of China and Turkey to take on more oil and gas.
But both those countries are thought to be purchasing at a discount compared to Europe, while military spending is unlikely to compensate for other lost trades.
And the likelihood of Russia restoring its global trading relationships even after the Ukraine war has finished seem remote, given accusations of war crimes that now overshadow Putin and his administration.
The exact cost of Russia’s war in Ukraine is difficult to calculate, but an analysis by Forbes in August suggested it had lost at least £14billion worth of equipment.
That was before the rout in Kharkiv or retreat from Kherson were taken into account.
The true cost of the war will be much larger than lost equipment, as sanctions, disruption to working lives, and loss of working-age males all take a toll.
There is also no end to the war in sight, with Russia digging into trenches across southern Ukraine and preparing to defend the Donbas.
Sanctions have already had a direct impact on Russia’s ability to raise capital by issuing debt, after it defaulted on its interest payments in July this year.
Moscow owed $100million to international lenders but was unable to pay after sanctions meant it was disconnected from the international banking system.
It marked the first time since 1918 that Russia had missed an interest payment.
The Kremlin vehemently denied it was in default, but ratings agency Moody’s pressed ahead with the declaration after a month-long grace period expired.
While initial effects of a default are limited, it likely drove up the cost of Russia’s future borrowing and will cause problems if it tries to re-join the global economy once the conflict is over.