Writer Alexander Colliander said, in a report published by “Spectator” magazine, that “the Russian economy’s budget in 2025 does not appear to be in danger,” despite the expected record military expenditures in exchange for a slight decline in oil and gas revenues, due to falling prices, but he warned of the consequences of “economic growth.” “War.”
The share of defense spending in GDP is expected to rise from 3.7% in 2023 to 5.3% in 2024, and 6.1% in 2025. Russia is currently spending another 3.4% of GDP annually on national security, which can be included. In the field of military spending, according to the writer.
In a report published by Spectator magazine, writer Alexander Colliander highlighted the reasons that enabled Moscow to continue spending on its ongoing war in Ukraine despite the challenges of declining oil and gas revenues and the repercussions of Western sanctions.
According to the writer, spending on the Russian army is scheduled to increase by more than a quarter, reaching 13.3 trillion rubles ($143 billion) next year, based on the draft Russian state budget for 2025, and “this huge amount is close to doubling the amount spent.” Last year, it was almost double the amount of defense expenditure in Britain.
Tax increases
According to the writer, the increase in non-oil tax revenues is expected to cover the increasing military bill, as increases in corporate taxes and income taxes have recently been approved.
Another source of income for the Russian government – according to the author – is the savings that Moscow had set aside before the war in anticipation of a decline in oil prices.
The government was setting its budget based on the price of a barrel at $40, with a small annual adjustment, so that this would become a “savings fund for difficult days,” according to the writer’s words.
The writer expected that the budget deficit would not exceed 0.5% of GDP in 2025, due to withdrawals from the emergency fund to finance capital investment and the budget deficit.
The writer believes that Western sanctions also contributed – unintentionally – to strengthening the war economy that Moscow currently relies on, as they dried up the flow of Russian capital abroad, which means more spending and liquidity at the local level.
Growth of the war economy
However, the writer believes that the surge in military spending will lead the Russian economy into recession, as the Kremlin is currently working to secure military needs but is not planning for the future, while the Ministry of Finance acknowledged the deterioration of the situation in light of the decline in oil prices, the decline in cross-border trade, and the tightening of sanctions. .
The writer explains that the continued growth of Russia’s war economy beyond its capabilities will create a large number of problems, including declining productivity, continued inflation, a boom in investments in war-related sectors alone, a labor shortage, and the depletion of oil resource reserves.
According to his opinion, devaluing the ruble will not protect the budget from falling export revenues, regardless of whether oil prices fall or sanctions are tightened or both, and all it will lead to is increased inflation without increasing production.
The writer goes on to say that the average citizen in Russia has begun to feel pressure as a result of the Kremlin’s decision to transform the country’s economy into a war economy, and it is not clear how long Putin will be able to continue financing the war machine without causing a state of collective discontent, when the boom turns into a depression, as he put it. .
The writer says that the current difficulties may not lead to an immediate collapse of the Russian economy, but at the same time it will not continue to flourish for a long time, and “the question for Ukraine and its allies is whether they can withstand until Russia collapses,” as he put it.
