War costs spell more economic pain

Spiraling war costs spell more economic pain for Russia

Analysis from Clare Sebastian and Hanna Ziady

“We have no funding restrictions,” Russia’s President Vladimir Putin told a gathering of military top brass in December. “The country, the government will provide whatever the army asks for.” Eighteen months into his war in Ukraine, Putin seems to be keeping that promise.

But he’s doing it increasingly at the expense of another, unspoken, compact with the Russian people: To maintain economic stability at home.

A few weeks before that December meeting, Putin had signed into law a budget that earmarked 4.98 trillion rubles — $52 billion at the current exchange rate — for “national defense” in 2023, a little more than last year’s expenditure. But according to a government document seen by Reuters earlier this month, that forecast has now been doubled to 9.7 trillion rubles ($101 billion). That’s almost three times what Russia spent on defense in 2021, before its full-scale invasion of Ukraine last February.

Those figures are likely to underestimate the total spent on Russia’s war effort. The Stockholm International Peace Research Institute, which tracks military expenditure around the world, estimates that the “national defense” line in Russia’s official budgets accounts only for around three-quarters of total military spending.

Richard Connolly, a specialist on the Russian economy at the Royal United Services Institute for Defence and Security Studies, also suggests that military spending this year will far exceed $100 billion. He said that before the war Russia would typically splash around 3-4% of its annual gross domestic product on defense but now it could be anywhere between 8% and 10%.

If the price of goods and services in Russia is taken into account, the equivalent amount in dollar terms for 2023 looks even higher, probably closer to $300 billion, estimates Janis Kluge, a senior associate at the German Institute for International and Security Affairs.