A Russian official warns that a banking crisis is possible due to unpaid debts. “I don’t want to think about a continuation of the war or an escalation”

Russia’s financial system is reportedly coming under increasing strain as Moscow’s war against Ukraine nears the end of its fourth full year.

The White House is seeking to restart peace talks this weekend with Ukrainian President Volodymyr Zelensky scheduled to meet with President Donald Trump in Florida on Sunday. Russian forces stepped up their bombing of Ukraine ahead of the meeting, but prolonged fighting poses risks to the economy.

“A banking crisis is possible” A Russian official told the Washington Post recently on condition of anonymity. “A debt crisis is possible. I don’t want to think about a continuation of the war or an escalation.”

Russia’s economy has been surprisingly resilient in the face of harsh Western sanctions after President Vladimir Putin launched his invasion of Ukraine in early 2022. China and India were eager to stock up on cheap Russian oil, which helped fill the Kremlin’s coffers and provide revenue for its military.

But more recently, energy prices have fallen as Europe and the United States have tightened sanctions. Oil and gas revenues fell 22% in the first 11 months of the year, and Reuters It is estimated that December revenues are on track to fall by almost 50%.

To fill the energy revenue deficit, Moscow called on its sovereign fund. But this sum is now running out, and so the government has had to raise revenue by raising taxes.

At the same time, a tight labor market and high inflation have forced the central bank to keep interest rates high, and recent easing has failed to prevent falling spending among several categories of consumers.

As businesses suffer the consequences of high interest rates and weaker consumption, Russian data shows unpaid wages almost tripled in October compared to last year, to more than $27 million. Job adding that time off and shorter work weeks are also becoming more common.

As a result, more and more consumers are struggling to repay their loans. Given the headwinds, the official Russian warning of a banking crisis or unpaid debts is not the first of its kind.

In June, Russian banks sounded the alarm on apotential debt crisisbecause high interest rates weigh on borrowers’ ability to repay their loans. Also that month, the president of the Russian Union of Industrialists and Entrepreneurs warned that many companies were in “a pre-default situation.”

And in September, SberbankCEO German Gref, one of the main leaders of the Russian banking sector, said thatthe economy was in “technical stagnation”following its warnings in July and August that growth was close to zero.

The Center for Macroeconomic Analysis and Short-Term Forecasts, a state-backed Russian think tank, said this month that the country could face a banking crisis by next October if lending difficulties worsen and depositors withdraw their funds, according to the Job.

“The situation in the Russian economy has significantly deteriorated,” writes Dmitri Belousov, head of the think tank, in a note seen by the newspaper. Financial Times. “The economy has entered the brink of stagflation for the first time since early 2023.”

This story was originally featured on Fortune.com

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