Things aren't looking good. What state will Russia's economy be in as it enters 2025?
Crack in the Russian Economy
In 2024, the Kremlin's expenses for the war in Ukraine are set to reach a record 16.3 trillion rubles—over 8% of GDP and 41% of the total central budget. This year, military spending has surged by 59% compared to 2023, driven by the escalation of combat intensity.
Relying on the principles of "military Keynesianism," Russian leaders anticipated that these government expenditures would ensure macroeconomic stability and continuous economic growth. However, this strategy has faltered due to the country's high dependency on imports and the diversion of resources from the civilian economy to fund the war.
One crucial detail in the organization of this war is the model for recruiting soldiers chosen by the Kremlin, which involves high payments to their troops. This represents a new method of waging wars for Russia, as historically, their soldiers were almost cost-free.
Annual payments to a contract soldier amount to 4-4.5 million rubles, the same sum is paid in the event of severe injury or death on the front line.
0Thus, the population of the Russian Federation is fighting for money. These are colossal amounts financed by the budget, reaching up to 3.5 trillion rubles per year. Consequently, a significant portion of budget expenditures for military financing is retained by the population engaged in the war.
The funds are "migrating" to deposits in commercial banks for two reasons: high deposit rates at 22-23% per annum, with a discount rate of 21%, and the lack of sufficient supply of goods and services to absorb this money. By the end of 2024, over 52 trillion rubles of the population's funds have accumulated in deposits.
1 2This monetary "hump" creates an illusion of growth in the financial wealth of Russians. However, there is no commodity offering that corresponds to the funds available to the population, and no added value has been created in the form of useful goods and services.