Russian defense industry absorbs civilian economy – intelligence

According to Ukrinform, this was reported by the Foreign Intelligence Service of Ukraine.

"For years, Moscow has been promoting the narrative of the military-industrial complex as the engine of economic growth. The reality turned out to be fundamentally different. The military-industrial complex functions as a giant pump that sucks resources out of all other sectors, including the enterprises that directly serve it," the agency said.

According to intelligence data, one-third of the federal budget is spent on the war – and even that is not enough. The real hole in the treasury has reached RUB 8.01 trillion compared to the officially reported RUB 5.65 trillion by the Ministry of Finance of the Russian Federation. Compared with 2024, the deficit increased by 130%, and the Finance Ministry's initial plan has been exceeded nearly sevenfold. The actual deficit in 2025 was 41.8% higher than officially declared and amounted to 3.7% of GDP instead of 2.6%.

Almost all sectors of the Russian economy are showing decline, while official statistics do not reflect the real situation. Even enterprises directly servicing the war effort are approaching bankruptcy.

Intelligence officials cited examples of two companies in Russia's Nizhny Novgorod region.

One of them, Fabrika Kompozitov (Composite Factory), fulfills a direct state defense order under the control of the Ministry of Defense of the Russian Federation. Despite this, at the beginning of 2025 the tax service imposed a collection order on the company's accounts for RUB 215 million (about $2.4 million). The accounts were frozen, and the enterprise, despite active defense contracts, halted operations.

Another Nizhny Novgorod manufacturer, Regional Industrial Company, has faced the consequences of wartime inflation. Loans taken in 2023 at 10.5–13% interest had risen to 29.4% by early 2026. In 2024 the company's turnover almost tripled compared to 2022, earning it the title of "Exporter of the Year." In 2025, however, turnover fell below the 2022 level.

In February 2026, payments effectively stopped due to a lack of funds for salaries, taxes, and raw materials. The company is developing the Aerocrafter 3010 UAV, but the project is now under serious threat of collapse. Requests to regional authorities to refinance RUB 93 million and allocate an additional RUB 50 million remain unanswered.

"The model chosen by Russia leads to systemic degradation: the state finances the military-industrial complex, the military-industrial complex draws away personnel and resources, civilian industry declines under the pressure of expensive loans, while enterprises working for defense needs are being destroyed by tax pressure and a debt spiral," the intelligence service said.

As Ukrinform previously reported, Russia postponed the mandatory localization of fiber-optic production for at least two years after the shutdown of the country's only factory producing this product.