Page 41 - RusRPTAug24

official defence budget for 2024 is $28.6bn, half of what was actually spent in 2023, when war expenditures accounted for one-third of the nation's total economic output. The EU restricts its member states from running a budget deficit greater than 3% of GDP, which complicates Ukraine's prospects of EU membership.
The financial situation raises concerns about how Ukraine will repay the G7 loans, especially as Western support shifts from grants to loans. "The longer the war continues, the more indebted and delinquent Ukraine becomes," Proud added, highlighting that most of the borrowed funds come from Western countries supporting Ukraine's defence efforts.
Russia's stance complicates matters further. With significant assets frozen abroad, Russia has little incentive to cease hostilities if it believes sanctions and asset seizures will persist. The country earns a surplus of at least $50bn annually from exports – the current account surplus in 2024 is expected to be around $90bn – which supports its continued involvement in the conflict, even if there is a stalemate on the battlefield.
In Russia, the Central Bank recently increased the main interest rate to 18%, a move interpreted by some critics as a response to "overheating" due to high government spending on defence. However, this rate hike is viewed by others as a determined measure to control inflation and maintain economic stability. Russia's debt-to-GDP ratio remains low at a tiny 0.5% of GDP, with economic growth exceeding 3% annually. Real wages have risen by 14% since 2018, suggesting economic resilience despite Western sanctions.
Real wages have been rising every year since 2018: first at 1%, increasing to 3% by 2021, and most recently hitting 6% in 2023. They will probably end 2024 at only a little less than that. Since the war began, real wages rises have been spread fairly equitably across the country as the poorest regions have been the biggest winners from the war.
Russia's Central Bank had previously stabilised inflation after the start of the war by hiking the price rate to 20%, reducing inflation to 2% in 2022. Rates have crept back up as the economy overheats due to heavy war spending but the rise in real incomes has lead to a boom in consumer spending and low unemployment.
The increase in real wages began well before the beginning of the war, and is not, therefore, due to just additional military expenditure. Rather, the increase in real wages, coupled with what by Russian standards were relatively low interest rates, encouraged a leap of 25% in household consumer expenditure and an increase in consumer borrowing – especially for real estate as a result of subsided mortgage rates, a programme now being wound down as the Central Bank of Russia (CBR) attempts to cool the economy by non-monetary means as well as rate hikes.
Russia’s main economic problem is a low rate (2.6%) of unemployment, a problem that Russia will probably have to fix by increasing immigration, as well as taking measure to boost the birth rate and increase productivity.
41 RUSSIA Country Report August 2024 www.intellinews.com