Page 22 - RusRPTNov22

the rest of the world will be far more expansive, Heli Simola, senior economist at the Bank of Finland Institute for Emerging Economies (BOFIT), said in a paper released on October 18.
“Russia’s war in Ukraine is, above all, a massive human tragedy and an assault on Ukraine’s economy and society. But Russia, too, will end up paying a high price for its cruel decision to wage war. The war’s price tag for Russia is, of course, impossible to estimate with any accuracy. But we can examine various indicators to illustrate the magnitude of the costs,” Simola said in her paper.
Before the war started Russia’s economy was expected to grow by a total of about 5% in 2022-2023, but as a result of the invasion and the “massive package” of sanctions that followed, now it is expected to contract by 8%-10% over the same period.
“Without the war, Russia’s GDP could therefore have been as much as 15% higher in 2023. At the average 2021 exchange rate, this means a GDP loss of approximately $270bn in 2023 alone,” Simola estimated.
The most obvious cost is the cost of fighting the war itself in terms of the defence spending. Defence spending in 2022 will be up by at least RUB1,200bn compared with the pre-war budgeted total. According to Russia’s provisional 2023-2025 budget, its defence spending for that period is being raised by a total of RUB2,600bn above the previously budgeted figure.
“So, since the start of the war, the country’s defence spending is being increased by at least RUB3,700bn (approx. $53bn at this year’s official average exchange rate),” says Simola.
However, more war spending can be included as “national security spending” in the budget and this has been boosted in 2022-2025 as well, by RUB3,700bn above the previously budgeted level.
Adding these numbers and that means an additional RUB7,400bn ($110bn, or almost 6% of the 2021 GDP total) is being spent on the military and security services.
“The expenditure total may even be greater than this, as not all budget spending is itemised,” says Simola. “It is also possible that the level of spending might be raised further beyond the budgeted figure.” More difficult to assess is the lost opportunity cost – the money Russia could have made if it had spent these funds on doing something positive. For example, Ukraine estimates the total cost of the war at between $700bn and $1 trillion, the cost of physical destruction at just over $100bn in terms of value and around $180bn in terms of what it will cost to rebuild it. The rest is lost growth, the lost devaluation of the currency, the departure of bond investors, and all the other might-have-beens if Russia had not started a war.
“Without the war, the Russian state could have used these funds for advancing the wellbeing of its citizens. Instead, to fund its war, the Russian state will have to cut expenditure on more beneficial matters such as road construction and science promotion. Additional defence spending may boost output in the
22 RUSSIA Country Report November 2022 www.intellinews.com