Expert estimates Russia's off-budget military spending exceeds $83 billion
Russia’s military spending, which has quadrupled since its invasion of Ukraine to a record high since the Soviet era, could be much higher than official figures, according to Craig Kennedy, an investment banker and former deputy chairman of Bank of America Merrill Lynch, The Moscow Times reports on Jan. 14.
Kennedy says that in addition to the 22 trillion rubles allocated by the federal budget for “national defense,” another 25 trillion rubles ($249 billion) went toward military needs via Russian banks. These banks provided loans to defense industries, which shifted to a 3-shift production schedule to assemble tanks, shells, and missiles.
Kennedy points out that corporate lending in Russia has surged by 71% since mid-2022, or about $450 billion, with 50% to 60% of these loans directed to defense industries. He cites data from the Central Bank, claiming that these loans were mostly given to uncreditworthy defense companies under state pressure and on favorable terms. As a result, off-budget military financing has nearly matched the funds allocated through the federal budget.
The Kremlin’s "secret" military budget, Kennedy estimates, could total about $83 billion per year, or $228 million per day, and over three years, this amount could rival the unfrozen reserves of the Russian Central Bank (slightly more than $300 billion), exceeding the annual GDP of countries like Greece ($238 billion), Qatar ($235 billion), and Hungary ($212 billion).
Kennedy notes that the Kremlin has used similar off-budget schemes in the past, including a massive arms program funded by preferential loans in the 2010s. However, the promised military upgrades never materialized, and the government ended up writing off billions in loans. This scenario could repeat itself, but on a much larger scale, Kennedy warns.
The issuance of loans to insolvent defense companies could lead to a systemic credit crisis, as the state may eventually need to bail out both the defense plants and the banks that financed them.
In December 2024, reports indicated the Kremlin had escalated its military spending to unprecedented levels. In the 2025 budget, defense spending is set to increase by 22%, reaching 13.2 trillion rubles. This follows previous increases in 2022 and 2023, when defense allocations were 4.7 trillion and 6.8 trillion rubles, respectively.
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