Vladimir Putin faces a growing budget deficit as Russians return to cash payments to avoid taxes and navigate mobile internet shutdowns.
Vladimir Putin is navigating a complex economic landscape as Russia adds 1.56 trillion roubles in cash to circulation since the start of the year. This surge represents the largest increase outside of the Covid-19 pandemic, driven largely by mobile internet shutdowns caused by Ukrainian drone strikes. These outages often leave citizens unable to use card payments, prompting a return to the Soviet-era habit of keeping money "under the mattress." The shift toward physical currency is creating challenges for the state as it seeks to fund the ongoing war in Ukraine. While the government recently hiked the VAT to 22% to boost revenue, many businesses are using cash to stay below tax thresholds and keep more income off the books. Taras Skvortsov, chief financial officer of Sberbank, noted that many businesses are now paying wages "in envelopes" to avoid payroll taxes. Despite high bank deposit returns, the administration faces the difficult task of cracking down on this "shadow economy" while simultaneously managing the infrastructure needs of a nation under constant aerial threat.