Russia faces liquidity crisis and military escalation in Ukraine

Russia is facing a severe liquidity crisis and is implementing strict fiscal austerity measures due to the escalating costs of the war in Ukraine. The Russian Ministry of Finance reported a historic negative balance in the National Wealth Fund of approximately 5.5 trillion rubles (about $65.3 billion). To manage this deficit, the government has imposed horizontal budget cuts of up to 35% across all sectors not directly related to the military, excluding military spending, public sector wages, and essential social programs.

Simultaneously, Moscow is considering intensifying its military operations. Following a perceived deadlock in peace negotiations, Kremlin sources indicate that Russia may escalate its use of conventional ballistic missiles against Kyiv and other Ukrainian infrastructure targets. President Vladimir Putin has signaled a refusal to end the conflict under the pressure of international sanctions and Ukrainian strikes on Russian energy infrastructure, warning that Ukraine has ‘opened a Pandora’s box’ regarding economic retaliation.