The dismissal of VEB’s chief economist exposes a widening debate over whether Russia’s wartime growth can survive a prolonged conflict.
MARKET INSIDER – Russia insists its economy has survived years of sanctions and unprecedented Western pressure. But the reported dismissal of one of the country’s most prominent economists after he warned that Moscow could not win a prolonged economic war of attrition is drawing renewed attention to what lies beneath that resilience. Nearly four and a half years after the full-scale invasion of Ukraine, Russia is still growing—but critics argue that military spending, higher taxes, subsidized lending and pressure on the energy sector are masking increasingly difficult long-term trade-offs.
Andrei Klepach, the chief economist of Russia’s state-controlled development bank VEB.RF and a former deputy economy minister, was reportedly dismissed after comments from a May presentation resurfaced in Russian-language media.
The Bell, an independent Russian outlet operating in exile, reported that Klepach’s departure was directly connected to his economic assessment, citing unnamed sources familiar with the matter. CNBC said it could not independently verify that connection.
Klepach’s warning was unusually stark for an economist occupying such a senior position within a state-controlled institution.
“In this war of attrition, we will not win the competition,” he told fellow economists on May 21, according to a translated transcript of his remarks. Rather than predicting an outright economic collapse, Klepach argued that Russia faced something potentially more consequential over the long term: widening economic underperformance and the possibility of a social crisis.
His central argument challenges one of the Kremlin’s most important economic narratives—that Russia’s ability to withstand Western sanctions demonstrates the durability of its wartime economic model.
Russia Has Defied Predictions of Economic Collapse
There is little question that Russia performed considerably better after 2022 than many early forecasts suggested.
Sweeping Western sanctions, the withdrawal of multinational companies, restrictions on technology imports and attempts to reduce Europe’s dependence on Russian energy did not produce the immediate economic collapse some observers anticipated.
Moscow redirected significant energy exports toward Asian markets, particularly China and India, expanded domestic production in strategic industries and deployed enormous government resources to support the economy.
Russia’s government continues to emphasize those strengths.
The Russian Embassy in the U.K. told CNBC that the country’s fiscal position remains significantly stronger than many Western economies, pointing to foreign public debt of approximately $57 billion.
“The Russian economy remains resilient, as does the will of our people,” an embassy spokesperson said, arguing that Western attempts to weaken Russia economically had failed to achieve their intended objectives.
Moscow also argues that sanctions have imposed substantial costs on European economies through lost business opportunities, disrupted supply chains and higher energy and commodity prices.
Those arguments are not without economic substance. Russia entered the conflict with relatively low sovereign debt, substantial natural resources and a government capable of redirecting large amounts of spending toward strategic priorities.
But resilience and sustainability are not the same thing.
The Wartime Economy Has Changed What ‘Growth’ Means
Russia’s economy has continued to expand slowly, but analysts increasingly question the composition of that growth.
A large share of economic activity is tied directly or indirectly to government spending on defense, weapons production, military personnel and industries supporting the war effort.
That spending contributes to GDP just as civilian investment does. A factory producing missiles, for example, generates output, employment and wages. But the resulting product does not expand the country’s future productive capacity in the same way as investment in commercial technology, transportation infrastructure or civilian manufacturing.
This creates one of the central difficulties in interpreting Russia’s economic performance.
Strong military production can keep factories operating, raise wages and support headline GDP while simultaneously diverting labor, capital and technology away from sectors that could generate longer-term productivity growth.
Klepach’s warning appears focused precisely on this distinction.
His argument was not that Russia was approaching immediate bankruptcy. Instead, he warned that the country’s economic gap with competitors could continue widening if the conflict becomes a prolonged contest of financial, technological and industrial resources.
Oil Remains Russia’s Critical Vulnerability
Energy remains central to the equation.
Oil and gas revenues provide Moscow with foreign currency and government income while helping finance public spending. Russia has successfully redirected significant energy exports away from Europe, limiting the effectiveness of Western attempts to isolate its commodity sector.
But the infrastructure supporting those revenues is increasingly under pressure.
Ukraine has expanded long-range drone attacks against Russian oil refineries and logistics infrastructure, demonstrating that economic assets far from the battlefield can become part of the conflict.
Damage to refineries can disrupt fuel production, increase maintenance costs and force Russia to allocate additional resources to protecting industrial infrastructure.
At the same time, sanctions complicate access to some Western technology, financing and equipment. Russia has developed alternative supply channels, but those arrangements can increase costs and reduce efficiency.
The longer the conflict continues, the more important these cumulative effects become.
Low Debt Doesn’t Tell the Whole Story
Russia’s relatively low government debt is one of Moscow’s strongest arguments against predictions of financial crisis.
But sovereign debt alone provides an incomplete picture of economic health.
The sustainability of a wartime economy also depends on inflation, interest rates, labor availability, private investment, productivity, access to technology and the government’s ability to finance spending without placing excessive pressure on households and businesses.
Higher taxes and subsidized bank lending can help sustain strategic industries, but they can also transfer resources away from the civilian economy.
Labor shortages create another constraint. Military mobilization, casualties, emigration and strong demand from defense-related industries can tighten the workforce and push wages higher without equivalent productivity gains.
This is why Russia could theoretically avoid a conventional sovereign-debt or currency crisis while still experiencing a gradual deterioration in its long-term economic potential.
That distinction is at the center of the current debate.
The Dismissal Adds a Political Dimension
Klepach’s reported removal has inevitably become part of the broader discussion over the space available for critical economic analysis inside Russia.
Swedish economist Anders Åslund highlighted Klepach’s conclusion that Russia could not prevail in a prolonged war of attrition and could ultimately face a social crisis.
Nigel Gould-Davies, senior fellow for Russia and Eurasia at the International Institute for Strategic Studies, described Klepach as a highly capable economist and argued that some of Russia’s strongest economic thinkers are also among those most concerned about the country’s trajectory.
The Kremlin and its supporters would dispute that interpretation, pointing instead to Russia’s continued growth, low foreign public debt, redirected trade and ability to maintain military production despite extensive sanctions.
Both observations can exist simultaneously.
Russia has demonstrated substantially greater short-term economic resilience than many Western policymakers expected. But that does not establish that the current model can be sustained indefinitely without accumulating significant economic costs.
The Real Test Is What Russia Looks Like After the War
For investors and policymakers, the most important question is therefore not whether sanctions have “worked” or “failed”—a binary framing that obscures the underlying economics.
The better question is what resources Russia must consume to sustain its current level of economic and military activity, and what those choices mean for future productivity, investment and living standards.
A wartime economy can remain operational for years when supported by natural-resource revenues, government spending, financial controls and industrial mobilization. The consequences often become clearer only over longer periods as capital depreciates, technological gaps widen and civilian investment is displaced.
That is why Klepach’s warning is significant even if Russia never experiences the economic collapse repeatedly predicted since 2022.
Moscow has already demonstrated that its economy can survive sanctions and prolonged war. The harder question—and the one Russia’s own economic debate is increasingly confronting—is whether surviving the war is the same thing as emerging from it economically stronger.
