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sanctions and export controls, which are expected to hinder investment and potential growth in the long-term in the short-term Russia’s economy is booming.
Much of this success relies on the expansion of the military-industrial complex. The delayed and imperfect introduction of the oil price cap has enabled Russia to bolster fiscal revenues and use them to stimulate the domestic economy. While export controls impede Russia’s military production and make it more expensive, they have not yet resulted in decisive choke points or disruptions in supply chains.
Direct military spending more than tripled to over $100bn (6 per cent of GDP) relative to the pre-2022 invasion of Ukraine.
Russia now boasts 6,000 military-industrial enterprises, a notable increase from the prewar figure of less than 2,000. These establishments collectively employ over 3.5mn individuals who operate round-the-clock, with three shifts and six-day workweeks becoming the norm, with at least half a million new employees. Additionally, these salaries have surged by 20 per cent to 60 per cent since the onset of the war. Russia’s unemployment rate to an all-time low of 2.8 per cent.
Employment, income and tax collection are also all reaping the benefits of the war boom. Moreover, regions that struggled for years to make ends meet are now experiencing a significant upturn due to the reorientation of production towards the war effort.
“The shift towards war-related activities is no longer merely a cyclical, short-term policy measure — it has become structural,” says Ribakova.
“However, reversing the structural investments made in the war will present a monumental challenge. For decades, Russia has struggled with under-investment and regional inequality, with only a handful of primarily commodity-producing regions being the net contributors to the budget transfer system. Past national projects and presidential decrees seemed incapable of changing that. However, for now, the war has,” Ribakova adds.
“Should the authorities attempt to halt militarisation, a hard landing could add pressure to the government, which already resorts to oppression to maintain power. Internal conflicts over limited resources may also intensify. Considering these challenges, it may be the more pragmatic choice for the government to continue militarising,” she concludes. “Rather than serving as a constraint, Russia’s economy might become an additional incentive to prolong its war in Ukraine.”
16 RUSSIA Country Report June 2024 www.intellinews.com