Russians turn to cash putting more strain on slowing wartime economy

Russians have been hit by mobile internet shutdowns and more businesses are seeking to dodge tax after more than four years of war with Ukraine.

Russia's economy has been under strain for over four years due to the ongoing war with Ukraine, with the country adding 1.56tn roubles to its debt. Mobile internet shutdowns have disrupted card payments, prompting Russians to return to cash transactions. The Russian government has introduced measures to mitigate the effects, but businesses are seeking ways to dodge tax, further exacerbating the financial pressure. The total debt now stands at £14.8bn, with a significant portion attributed to the war efforts.

The shift to cash transactions will directly impact the average Russian's daily life, particularly in terms of access to essential services. For instance, the increased reliance on cash may lead to higher prices for basic goods, such as food and medicine, as businesses pass on the costs of tax evasion to consumers. This, in turn, may affect the purchasing power of Russians, making it harder for them to afford everyday items. As a result, the cost of living may increase significantly.

The current economic situation in Russia is a culmination of events that began with the annexation of Crimea in 2014. The subsequent imposition of international sanctions has limited Russia's access to foreign capital, forcing the government to rely on domestic sources of funding. Insiders are aware that the Russian government has been exploring alternative ways to raise funds, including the issuance of sovereign bonds. Historically, Russia has struggled with economic instability, and the current situation is a reminder of the country's vulnerability to external factors.

In the coming weeks, the Russian government is expected to announce new measures to stimulate economic growth, including potential tax reforms. A key decision will be made on March 15, when the Russian Central Bank will review interest rates, which may have a significant impact on the value of the ruble. Surprisingly, some analysts believe that the increased use of cash may actually help to stabilize the ruble, as it reduces the country's reliance on digital transactions that are vulnerable to international sanctions.