By Olha Chepil | 2024-11-11

KYIV -- The war in Ukraine has spurred a drop in the standard of living in Russia, with Russians' debt growing at a record pace, analysts say.

Because of sanctions, the devaluation of the ruble and inflation, along with massive spending on the army and military production, personal debt has reached unprecedented amounts for millions of Russians.

Now, Russian post offices are overflowing with dunning notices from debt collectors and banks, a postal worker in Arkhangelsk told Kontur.

Russia overindebted

Nadezhda, whose real name is being withheld for her protection, said she sees thousands of debt collection notices every day at her job.

"They're all letters from the regional collection service, a type of debt collector," she said. "The letters also come from banks. They come from Sberbank and Tinkoff Bank. I'm not talking about one letter coming, or 10. They come by the thousands."

Nadezhda said she no longer sees greeting cards or personal letters, just letters from banks and debt collectors. Sometimes one person may receive up to 40 dunning notices, she said.

After 2014, when Russia started occupying new territory in Ukraine, new boxes started cropping up in the post office, and new debtors.

Russians "are all overindebted. Russia is overindebted. And new post-office boxes show up here when Russia annexes new territory," Nadezhda said. "They annexed Crimea, and two more boxes appeared in the post office: Simferopol and Sevastopol."

"At first only one or two letters would go in them, but now letters are sent there in droves. We now have boxes for Donetsk and Luhansk. Letters have already started being sent there."

Sometimes because there are so many letters going out, there might be a whole box of unsealed envelopes, Nadezhda said.

She looked at a few of them, and she saw that individuals were borrowing mainly before the holidays, indicating they did not have money for basic necessities.

"I took a look and saw that someone originally had borrowed 1,000 RUB [about €9.50] and [the lender] already was demanding 15,000 [€142.50]," Nadezhda said.

"You can see from the dates that people are taking out microloans on March 7, December 30 and August 30, meaning that they're not able to buy gifts for their relatives, food [for a New Year's celebration] or school supplies for their kids. "

Snowballing debt

As of early July, the volume of loans taken out by Russians had reached a staggering 37 trillion RUB (€350 billion), Izvestia reported August 7, citing the Central Bank of Russia.

By comparison, in 2014 Russians owed 10 trillion RUB (€95 billion) -- one-quarter of this year's debt amount.

Russians "are borrowing for everything -- for home appliances, phones, TVs. These shows that real wages are insufficient to cover daily needs," said Ivan Us, an economist and chief consultant at the Center for Foreign Policy Studies of the Ukrainian National Institute for Strategic Studies.

"You can't live decently [in Russia] if you don't have credit," he told Kontur.

Clients are taking out new loans because they earn too little to pay off prior loans, according to Us. Each new loan requires an even higher interest rate, and consequently, the debts snowball.

"In Russia the model that's increasingly developing is one of living mainly on loans," he said.

"As a result, the number of [debtors] who have three or more loans is rather high. They take out a loan and then repay a loan with a loan. When that's not enough, they take out two loans, and three and more."

Collapse on the horizon

Since the start of the full-scale war, prices have skyrocketed in Russia, but the salaries of ordinary workers have stagnated, Us said. Only Russians connected to the war began to earn more.

For example, in 2022 the lump-sum payment for a military contract was 200,000 RUB (€1,900), while now it has been reported that in Belgorod province this payment is ten times that -- 2 million RUB (€19,000), Us said.

"The market sees that the price of the contract is rising quickly, so the perception is that there's money, and then prices go up," he said. "But not all Russians are signing this contract. No one wants to be cannon fodder. So not everyone has money, but prices are increasing for everyone."

Feeling hopeless, Russians are now turning to microlenders because Russian banks have begun to assess creditworthiness more strictly.

Banks are turning applicants down because of poor credit histories, overdue interest payments or outstanding prior debts, analysts say.

As a result, to secure a loan, many Russians have started to borrow against their vehicles: cars, motorcycles and mopeds.

"If you live on credit but loans aren't being given out, there will be a collapse," Us said. "We can already see that on the horizon."

Everything for the war

While Russians are scrounging for money to buy basics, the Kremlin is not sparing any expense on the war with Ukraine.

The Moscow Times on October 15 calculated that weekly spending on the war exceeded the annual budgets of 80% of Russia's provinces.

"The amount of money spent in one day on the war could finance a federal district for a year. That's roughly what you can compare it to," said Ukrainian economist Oleksiy Plotnikov.

The Kremlin spends about 30 billion RUB (€284 million) per day on the war in Ukraine, he said.

In late September the Kremlin released the 2025 draft budget, which contains record military expenditures yet plans to reduce spending on social benefits and education.

"Instead of administering social support and instead of raising the standard of living, especially that of the Russian provinces, which basically have never had a great standard of living, the Russian government is throwing all its money at the war," Plotnikov told Kontur.

The economic situation in Russia will likely continue to decay, he said.

"Russia is under sanctions, it's [essentially] blockaded, and its import-export sector has shut down. There is no other income," Plotnikov said.

"All of this will lead to an overall degradation of the situation and to troubles with debt," he said. "Then the debt problem will lead to an even more drastic decline in the population's standard of living."