Leading economist says Russia risks inflation surge amid fiscal and credit crisis

Russia’s economy is entering 2026 facing mounting crises on multiple fronts.

Even the Kremlin-aligned Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) has, by formal criteria, identified a banking crisis: the share of problematic assets has exceeded 10% of the system’s total assets.

But this, Lipsits argues, is only the tip of the iceberg. Beneath it lies excessive indebtedness in several key sectors of the Russian economy.

One of the most visible manifestations of systemic distress is the construction industry. Samolet, one of Russia’s two largest real estate developers, is reportedly on the verge of bankruptcy and has asked the state for 50 billion rubles (about $644.7 million) to repay bank loans. Housing sales have stalled, new mortgage programs are being curtailed, and a property market long inflated by subsidized lending is losing its final supports.

Adjacent industries are beginning to falter as well — steel production, building materials manufacturing, logistics.

The combined deficit of all levels of Russia’s budget system — federal, regional, and social funds — has reached roughly 4% of GDP, or about 8 trillion rubles (approximately $103.1 billion). That equals roughly one-fifth of the federal budget, which totals around 40 trillion rubles (about $515.7 billion).

Russian regions are also taking out commercial loans at annual rates of 20%, with little realistic prospect of repayment.

At the same time, the number of utility system failures this winter has surged again. Infrastructure neglected for years is collapsing whenever temperatures drop — even without any impact from Ukrainian drone strikes.

A well-known Russian economist and former head of the macroeconomics department at the Higher School of Economics, he left Russia and now resides in Lithuania.

Why does he see the situation this way? NV spoke with him about the risks facing Russia’s banking system and broader economy.

“This is not a classic bank run”

— The CMASF report on the banking system is now being widely cited. What’s actually new in it? Is a banking crisis already underway in Russia?

“The crisis is not unfolding because people are withdrawing their deposits,” Lipsits said. “This is not a classic bank run. The crisis is unfolding because banks issued loans, and companies and other borrowers cannot service those loans. That’s the problem.”

Companies borrowed at very high interest rates, likely assuming the economy would grow, revenues would rise, and they would find the money to repay. But that has not happened. The economy is contracting.

“Right now, only the military sector shows signs of life. The civilian sector is dying, shrinking, stagnating — and not just stagnating anymore, but declining.”

Without cash flow, enterprises cannot repay their debts. Samolet is a characteristic case: one of the largest developers borrowed heavily to build housing and now cannot return the funds. It is effectively prepared to hand itself over to the state in exchange for 50 billion rubles just to avoid bankruptcy.

Those 50 billion rubles, Lipsits explained, would go directly toward repaying banks that financed construction. Housing is not selling. If Samolet does not receive the funds, problems begin for the banks that lent to it.

“And then it will be the banks that need rescuing. But formally, banks are not the responsibility of the government or the State Duma — they fall under the central bank. So in this situation, everyone is left to save themselves.”

If developers begin collapsing — and construction is one of the most heavily leveraged sectors in Russia — the crisis could become systemic.

“The share of bad loans may turn out to be not 10–11%, as CMASF writes, but significantly higher.”

“The iceberg is about to break apart”

— The Russian central bank has spent months insisting the banking system is stable. Has something changed?

“Notice what happened after the Samolet story emerged,” Lipsits said. “The central bank, which for months said everything was wonderful, stable, and excellent, suddenly became very nervous.”

It announced an urgent stress test of banks’ exposure to construction-sector risks.

“They clearly understand that more trouble is coming. Once other developers follow Samolet, the banking system will begin to crumble.”

What is visible now, he said, is only the tip of the iceberg.

“And the iceberg itself is about to start breaking into pieces. No one yet understands what to do with it.”

“They are masking the real scale”

— CMASF says bad loans exceed 10%. The central bank acknowledged roughly 10 trillion rubles (about $128.9 billion) in bad debt. Is that the full picture?

“CMASF writes slightly above 10%. The central bank also admits around 10 trillion rubles in bad loans,” Lipsits said. “But at the same time, they are doing the opposite.”

On Dec. 30, the central bank sent banks a letter urging them to restructure loans and extend credit to troubled borrowers “if there is hope of improving the borrower’s financial condition.”

“Hope?” Lipsits asked. “In the middle of an economic decline?”

On one hand, authorities are trying to prevent collapse. On the other, they are obscuring the real scale of the problem.

“The true share of bad loans may turn out to be significantly higher.”

“A prepared truth”

— Why are CMASF analysts allowed to publish such frank data?

“Every government official solves two tasks at once,” Lipsits said. “First, to please their superiors with beautiful stories about a bright future. Second, to protect themselves by releasing some negative information so they can later say, ‘I warned you.’”

Officials sense that trouble is near, he argues, and are beginning to publish more pessimistic statistics.

If one reads CMASF’s report carefully, he added, responsibility is placed on the central bank. They cannot openly say that the war or President Vladimir Putin’s policies have destabilized the economy.

“So they say: the central bank raised credit costs too high, and that caused the collapse. It’s a kind of prepared truth.”

“Hyperinflation is not impossible”

— What is your forecast for Russia’s banking system by the end of 2026?

“A positive scenario is practically impossible,” Lipsits said. “For a positive outcome, there would need to be an inflow of funds into the banking system. Where would that come from?”

Banks would need to recover loan capital — which also appears unrealistic.

Imagine Samolet’s bankruptcy, he said. Its assets would pass to the banks, leaving them holding unsold housing projects. They would attempt to sell, cut prices, trigger a price war, and ultimately suffer heavy losses.

“The only question is whether they will lose all their money and go bankrupt, or just lose a great deal.”

Lithuania experienced something similar in 2008–2010, Lipsits noted. Mortgage borrowers defaulted, housing transferred to banks, and banks struggled for years to offload property at deep discounts.

Such a scenario, he warned, could cripple Russia’s construction sector for years. Banks would weaken and require capital injections.

“That creates the risk of hyperinflation.”

The range of outcomes is stark.

“In a better scenario, inflation jumps into double digits — galloping inflation. In a worse one, Russia could enter hyperinflation, meaning more than 50% annually.”

“Developers are afraid to trigger panic”

— Other developers insist everything is fine. Samolet accounts for roughly 4.3% of the market. Is the situation really that severe?

“As far as I know, Samolet is still the largest company,” Lipsits said. “The second-largest is PIK. These are the two biggest players.”

He cautioned that public statements from developers should be viewed skeptically.

“They are afraid of creating panic. Housing is a retail market. Retail behavior depends on expectations.”

The worst scenario for construction companies is a shift in expectations toward falling prices. If buyers believe prices will drop, they delay purchases, triggering immediate crisis.

“So developers are playing the opposite game,” Lipsits said. “They are trying to convince consumers there will be a shortage of housing and prices will rise — so buy now.”

Admitting distress would signal collapse and freeze demand.

“Most likely, their reassurances are deception. Smaller companies are in even worse shape than Samolet or other large developers — they have less financial cushion, less bank support. But they will all say everything is fine.”

“Japan is the warning”

— Russia’s market has a large volume of unsold housing, yet prices have not fallen. How long can that last?

“This is a gamble,” Lipsits said. “In any market system, there is always a game between seller and buyer.”

Developers create the impression that prices will only rise. They hold prices as long as possible, sometimes even increasing them nominally under inflation.

“And then comes a sudden collapse.”

To understand what that means, Lipsits points to Japan in the late 1980s and early 1990s. Real estate prices rose steadily before crashing, followed by a decade of stagnation.

“There was the same belief in Japan that property prices could only rise. Then it turned out no one would buy at those prices. The market collapsed, banks collapsed, and Japan endured a prolonged downturn.”

Russia, he said, is playing the same game now.

Those who wait may eventually buy cheaply, but the country will pay with bankruptcies, mass layoffs in construction and steel, falling demand as incomes decline, and severe damage to social and political stability.

“The era of support is over”

— Mortgage subsidies are being tightened. Will that accelerate the crisis?

“Absolutely,” Lipsits said. “The state is reducing support for construction.”

The current boom began in 2020, when COVID prompted the government to introduce subsidized mortgages. The policy led to a surge in lending and rapid price growth.

But housing became less affordable, with prices rising far faster than incomes.

In 2024, subsidized mortgages were canceled beginning July 1. Family mortgage programs have now been tightened.

“That’s it. There are no more support mechanisms, and there won’t be. No one will rescue developers anymore, because now everyone needs rescuing — steel producers, construction firms, logistics, coal, forestry, machine-building. The entire economy.”

“And there isn’t enough money for all of them.”

“Yes, entire economies can fall”

— Have there been examples in global economic history when so many sectors were chronically ill at once — not an acute phase that might pass, but a prolonged structural decline?

“Of course,” Igor Lipsits said. “Look at the Great Depression of the 1930s. You’ll see declines across virtually the entire U.S. economy. Europe experienced the same pattern. It was not just national — it was global.”

He also points to Russia in the 1990s.

“In the 1990s, all sectors were falling. Because everything is interconnected: one sector stops working, it stops buying from another, which then stops buying from a third. The decline moves down the chain. So yes — entire economies can fall.”

“This is pure bureaucratism”

— Russian Prime Minister Mikhail Mishustin recently said everything is fine and plans are being fulfilled. How should that be understood?

“Read carefully what he actually says,” Lipsits replied.

President Vladimir Putin has demanded that the government urgently develop plans to accelerate economic growth in 2026. Growth of 1%, after boasting about 4%, is politically embarrassing.

“And what did Mishustin respond?” Lipsits asked. “He said the Cabinet’s current task is to create conditions by the end of 2026 for forming a ‘clear forecast of how to stimulate economic growth.’”

In other words, by the end of 2026 they will only create the conditions. Based on those conditions, in 2027 they will write a forecast. And only after that will they develop a growth plan.

“They cannot actually do anything, so they imitate activity. This is pure bureaucratism — and, in effect, sabotage of Putin’s words.”

“This crisis will intensify”

— Utility system failures have increased sharply again this winter. You predicted this two years ago. Is this the crisis you warned about, or could it deepen further?

“It will deepen,” Lipsits said. “This is a permanent crisis — not something accidental.”

He noted that the winter of 2023–2024 already saw a sharp spike in breakdowns. The winter of 2024–2025 was milder, and there were fewer incidents. But this winter has been colder — and failures have surged again.

“This will repeat every time a cold winter comes — and progressively worsen.”

Stopping the trend would require enormous investment, but the money simply is not there.

“All summer long across Russia, there were large articles about massive modernization of utilities under governors’ supervision,” Lipsits said. “Those were fake publications. No real work was done. No money was invested. Nothing was repaired. Winter arrived — nothing was fixed — and everything began bursting and collapsing.”

The logic, he explained, is simple: if a governor or mayor repairs infrastructure in summer, local funds are spent. But if nothing is repaired and a breakdown occurs in winter, it becomes an emergency — and then the federal budget pays.

“So local administrators do not spend their regular revenues on utilities. They have too many other obligations — including bonuses for contract soldiers. In winter, the federal budget covers emergency repairs. That’s how today’s Russia is structured.”

“There are only two options”

— The total deficit of Russia’s budget system is about 8 trillion rubles. Is that large?

“It means the state has begun borrowing on a massive scale,” Lipsits said. “And printing money.”

In his view, Russia has only two real options to cover such a deficit.

The first is to print additional money, thereby accelerating inflation. The second is to try to borrow from the economy by selling federal bonds.

“But the problem is that such volumes are no longer sellable,” he said.

As a result, the central bank effectively prints money, provides it to commercial banks, which then use those newly issued funds to purchase government bonds. The Finance Ministry receives this newly created money and spends it — largely on the military and the war. Those funds enter the economy and drive inflation.

“So practically the only real source for closing this gap is printing unbacked money. And inflation will only move upward.”

Even covering 10 trillion rubles (about $128.9 billion) in bad loans would require injecting roughly one-twelfth of Russia’s total money supply.

“And it may turn out that much more will be needed. That is already a threat of hyperinflation.”

Currently, the federal budget spends about 3 trillion rubles (approximately $38.7 billion) per year servicing state debt — just interest, not principal repayment.

“That’s roughly equal to what Russia spends on education and healthcare combined. Money taken from medicine and education is going to banks that purchased government bonds.”

“A game of shifting collapse”

— How will regional budget deficits be covered? How significant is this for Russia?

Previously, regions received transfers from the federal budget and loans from the center. These loans were repeatedly written off, as they were unrecoverable.

Now, transfers have sharply declined, and federal loans are scarce.

“So regions have started borrowing from commercial banks at market rates — around 20% annually.”

For example, the administration of Rostov Oblast sought loans totaling 20 billion rubles (about $257.9 million) to cover its budget deficit, according to official reports.

“These are large sums. Regions cannot repay them by definition. But you can’t declare a region bankrupt.”

It resembles the utilities situation, he said: each actor plays their own game, assuming that eventual collapse will be absorbed by the federal center.

“The idea is: yes, we will go bankrupt, we won’t be able to finance regional life. But the federal government cannot allow that. So it will take us under its wing.”

If regions cannot service their debts, banks face further problems — returning to the earlier discussion of banking crisis and money printing.

If regions do repay loans, they must cut spending on schools, kindergartens, public transport, street lighting, and salaries for regional public employees.

“In the end, it is the population that pays — whether at the federal or regional level, there is little difference.”

“Massive hidden revenues? Unlikely.”

— Some suggest Russian companies are bypassing sanctions and real budget revenues are much higher than official figures. Is that realistic?

“Highly unlikely,” Lipsits said.

Since 2023, currency controls have been significantly tightened. Financial monitoring officials were embedded in major exporting companies with authority to review full financial reporting.

“This has not been abolished.”

While exporters were allowed to keep some foreign currency abroad to facilitate import payments after Russia’s disconnection from SWIFT, this occurred under government supervision.

“Everything is tracked by the tax authorities. It is absolutely unrealistic to imagine companies are hiding money on a massive scale.”

“April–May could be decisive”

— Western media sometimes suggest Russia is only months away from crisis. Is that accurate?

“There is objective knowledge about how budget revenues move relative to oil prices,” Lipsits said.

Changes in oil prices take three to four months to be reflected in budget revenues.

“The decline in oil prices and export volumes that began late last year and continues now will lead, in three months, to a collapse in budget revenues.”

He predicts a major drop in revenues around April or May.

“That is when the real fork in the road will come.”

At that point, Russia may face a forced transition to a mobilization economy — a labor-camp-style model fundamentally different from today’s structure.

“It is not accidental that Dmitry Medvedev recently wrote about how well people consolidate in North Korea. That suggests awareness that such a fork in the road is approaching.”

“No one will dare say it”

— Is Putin being told the real situation?

“I think he is told something,” Lipsits said, “but in a very carefully prepared form.”

No official will openly tell the president that the war he launched has destabilized the economy and must be ended.

“They will speak cautiously. He will say, ‘You must fix it.’ They will proceed cautiously. Hoping that at some point something will change in his thinking.”

But to say directly that catastrophe could come in three months — and that the war must be wound down — is unlikely.

Putin has already shifted from boasting of 4% growth to discussing 1%, and framing economic slowdown as necessary to fight inflation.

“He constantly offers soft, parachuted explanations to avoid acknowledging that under his leadership the country has been driven into collapse.”

Information reaching him is worsening month by month.

“Ultimately, he will have to decide: either end the war so that the economy and country do not collapse, or move to a labor-camp model similar to North Korea. That option cannot be excluded.”

“A scientific dispute”

— You have an ongoing debate with other Russian economists in exile, including Sergey Aleksashenko and Vladislav Inozemtsev. Has their rhetoric changed?

“Inozemtsev has become quieter, speaks less frequently on this,” Lipsits said. “Aleksashenko continues to argue that the Russian economy remains stable. Sergey Vakulenko makes similar arguments.”

Some economists maintain that Russia still has a significant reserve of strength.

“It was quite amusing when Aleksashenko kept saying there were still large treasury reserves. Then a deputy finance minister publicly stated that all reserves had been spent — nothing remains.”

Still, Lipsits acknowledged the complexity of the situation.

“We are dealing with an extremely complex process — the destruction of Russia’s economy. It is a vast system that can be viewed differently. I cannot claim there is only one perspective.”

He sees the situation one way; others see it differently.

“But I believe that view is incorrect. They give false hope that Russia’s economic resilience is so great that it only needs to endure. It does not look that way to me. My assessments do not confirm that.”

“That is why I engage in scientific discourse.”