Russia Finds It Increasingly Difficult To Finance War
3- Ksenia Kirillova
- 28.11.2024, 17:16
- 6,486
Now even pro-Kremlin sources cannot deny this.
Despite the efforts of the Bank of Russia, inflation is becoming higher, which is causing increasing discontent among the population. At the same time, the main tool of the Central Bank remains the increase in the key rate, which leads to a slowdown in the economy, complicates the financing of government spending and causes discontent among the “war party”. Experts predict that in order to finance the war, the Russian government will have to abandon the containment of inflation, and this will hit the well-being of Russians even harder, according to a publication by the Jamestown Foundation.
Inflation in Russia continues to increase, which even pro-Kremlin sources cannot deny. At the same time, independent economists note that the tasks of maintaining convincing rates of economic growth and macroeconomic stability have become incompatible. In order to continue the war, the authorities will have to sacrifice the economic stability of Russians.
Back in the spring, data from independent sociological surveys showed that 54% of respondents consider rising prices a more acute problem than war and terrorist attacks. Today, pro-Kremlin Telegram channels also admit this.
Officially, inflation is 8.5%, although even pro-Kremlin media admit that real inflation figures are much higher and, judging by the weakening ruble, will only grow. Real inflation is currently estimated at around 15.3%.
The main tool that the Bank of Russia uses to reduce the rate of price growth is to increase the key rate, which is currently 21%. At the same time, the Central Bank has hinted at its further increase. Economic experts, in turn, argue that even taking into account the measures taken, it will not be possible to achieve the desired 4% inflation per year even by 2026.
At the same time, independent observers note that the extremely high key rate has already led to a slowdown in the economy. The Central Bank's operational statistics show that economic activity in October was lower than the average in the third quarter. Experts from the Center for Macroeconomic Analysis and Short-Term Forecasting even warn that “in the near future, Russia is threatened by an economic downturn and a collapse in investment.” Against this backdrop, the confrontation between the “war party”, which advocates maintaining economic growth at any cost, and the “party of tight credit policy” is intensifying. Experts predict that the victory of the “war party” is a foregone conclusion, and as a result, the head of the Central Bank, Elvira Nabiullina, will have to come to terms with the fact that the government will abandon the goal of containing inflation. Indeed, criticism of the head of the Central Bank is growing not only in radical patriotic circles, but also in relatively “moderate” sources, including those close to the Presidential Administration. Thus, the Telegram channel “Nezygar” accuses Nabiullina of the failure of her methods of containing inflation by raising the key rate. The channel's authors also blame the Central Bank for putting Russian industry “on the brink of survival,” and for people preferring to keep their money in bank deposits instead of returning it to the real sector of the economy due to high interest rates on deposits.
At the same time, there are reports that government spending in Russia is becoming increasingly difficult to maintain, spare capacity is exhausted, and the economy is showing classic signs of overheating. Vladimir Boglaev, director of the Cherepovets Foundry and Mechanical Plant, even called the situation “critical”, stating that “deliveries under Rosoboronzakaz have not been paid for a year.”
This does not mean that Russia will no longer be able to finance the war. Both Russian independent economists and Western experts agree that Moscow can finance the war for several more years, despite the overheating of the economy. However, the costs of such financing are becoming increasingly higher. This is not only an uncontrolled increase in inflation, but also the withdrawal of funds from other areas of the economy. Back in September, economist Igor Lipsits predicted that “Russia will find money for the war, but not for everything else.” Indeed, according to opinion polls, Russians themselves believe that the healthcare, housing and utilities, social assistance, and road services sectors are seriously underfunded.
As for the social sphere, independent journalists report that war veterans receive up to 83% of the regions’ social budgets. For example, in Stavropol Krai, the authorities allocated 12 times more money to contract soldiers than to orphans and 6 times more than to unemployed residents of the region. In Karachay-Cherkessia, war veterans and the families of the deceased received three-quarters (75%) of all social payments transferred to the population in 2024. In the Kaluga region, every second ruble in social payments to the population (52%) goes to war veterans and the relatives of the deceased.
To cope with the economic imbalance, Russian officials are calling for the lifting of restrictions on overtime work. This initiative was put forward by the head of the Ministry of Economic Development of the Russian Federation, Maxim Reshetnikov, who also announced the widespread use of the labor of teenagers and the elderly people. However, it is obvious that child labor cannot solve the problem of the worsening economic imbalance.
It is also worth remembering that the Kremlin will need additional funds and production capacity to modernize weapons, since the old ones are increasingly breaking down. Back in the spring, there were reports that India refused Russian arms exports not only because of sanctions, but also because the Russian military-industrial complex failed to modernize its line of weapons.
Today, even Kremlin-friendly channels report that “Russian air defense systems are complete junk compared to Iranian ones,” which has angered representatives of the IRGC (Islamic Revolutionary Guard Corps — edit.), who used these systems on their territory. Given the Ukrainian strikes on Russian territory, upgrading air defense systems is an urgent task for Moscow, which will also not be easy to solve in the context of a slowing economy.
Be that as it may, it is obvious that the Kremlin will solve all these problems at the cost of the well-being of the population.
Ksenia Kirillova, “Krym.Realii”
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