Russia economy meltdown as Moscow 'burning' through funds with £3,700 soldier bonuses

Russia's high recruitment bonuses are putting a strain on the country's economy. (Image: Getty)

To sustain its military presence since its full-scale invasion of Ukraine almost three and a half years ago, last July, Vladimir Putin was forced to sign a decree more than doubling the standard enlistment bonus for soldiers from 195,000 rubles (£1,848) to 400,000 rubles (£3,791)—nearly five times Russia's average monthly wage. However, such a high recruitment bonus has put a major strain on Russia's economy, a recent report from the Institute for the Study of War revealed.

These ballooning costs, as well as a labour expansion in the defence industry, both vital to help Russia sustain its war effort in Ukraine, have left the country "burning the candle at both ends", ISW analysts have said. Since Russia invaded Ukraine on February 22, 2022, it has suffered over 950,000 injuries and deaths in the war, according to the Centre for Strategic and International Studies last month. But, as Russia continues to pour funds into its war effort, this drive to boost recruitment figures has placed the military in direct competition with civilian industries for labour, particularly in services, and is driving up wages and inflation.

Over time, these 'unsustainably high' payments to soldiers will increase macroeconomic instability. (Image: Getty)

According to the ISW analysts, "Russia cannot indefinitely replace its forces at the current casualty rate without an involuntary reserve mobilisation, which Russian President Vladimir Putin has shown great reluctance to order, nor can it sustain increasingly high payments to recruits, which the Russian economy cannot afford".

They added that Moscow is "burning the candle at both ends" by loosening monetary policy to prop up growth and expanding wartime spending. The combination, they said, risks further destabilising the economy.

They added that, over time, these "unsustainably high" payments to soldiers are likely to erode customer purchasing power, weakening the ruble and increasing macroeconomic instability.

While these lucrative bonuses helped fuel short-term growth, the Bank of Russia continues to direct credit to military-linked sectors, squeezing other sectors. (Image: Getty)

While Moscow beat its recruitment goals last year, this was done largely through lucrative bonuses. Some regional governments even offered bonuses on par with the US military's sign-on payments. This approach helped fuel short-term growth.

However, by mid-2023, the economy had begun to overheat, forcing the central bank to raise interest rates repeatedly. However, no major shift in policy has been detected, with the Bank of Russia continuing to direct credit to military-linked sectors, increasingly squeezing other parts of the economy.

The economy is not Mr Putin's only problem, either. The Russian president is now relying on teenagers to build the suicide drones used to target Ukraine every day. Images captured from Zvezda, the Russian defence ministry's TV channel, were shared on X and show a production line of Geran-2 drones. The voice-over says: "Everywhere you look, there's young people working here." Teenagers have reportedly been asked to work at Yelabuga from the age of 15 to make drone components and do computer work, which has been facilitated by the nearby college.