Russia can continue to finance the current level of military expenditure and moderately large budget deficits for at least another two to three years by emptying its National Welfare Fund, raising taxes and borrowing more money. Such a policy would lead to additional inflationary pressure and lower growth. It would also increase the risk of a crisis in the banking sector or localised economic crises in the regions. However, there are no strong reasons to believe that the current economic challenges are so severe that the government cannot manage them. The problem for the Russian leadership is, rather, that there is an unpredictable and unquantifiable risk that it will have to impose economic hardships upon its population and firms, which in turn could lead to uncertain consequences. In addition, the high level of military expenditures means that, in the longer run, Russia's economy is weakening in relation to the economies of Europe, the USA and China.