(Reuters) – Russia plans to spend nearly a third of its budget next year on defense and internal security. Budgets allocated to schools, hospitals and roads will be cut to finance the maintenance of military operations in Ukraine.
The Russian government will spend a total of 9.4 trillion rubles ($21.5 trillion) on defense and security, according to a budget analysis by Reuters. Next year will be a pivotal year leading to Putin’s re-election in 2024, but other priorities will be weighed down.
The security budget alone, which includes the work of the Investigative Committee of the Russian Federation, the Prosecutor’s Office, prisons and the National Guard deployed in Ukraine, will increase by 50% compared to 2022.
It will be a record defense and security budget for the Russian government, but the amount itself is dwarfed by next year’s US defense budget and budget to meet some (but not all) of our security needs. national: only about 18%.
“The state budget has become a means of financing military operations,” said independent analyst Alexandra Susurina. “Even though the pension and education budget has been increased, it pales in comparison to what Russia should be doing.
Russia’s finance ministry did not respond to a request for comment.
Russia’s intention to leverage its military operations against Ukraine can be seen through the budget changes. Ukraine has suffered a major setback since September despite the announcement of the annexation of four partially occupied provinces. Putin has directed the government of the Russian Federation and the country’s more than 80 federal constituents to work together more effectively than ever before to support military needs.
At first glance, next year’s defense budget will amount to 4.98 trillion rubles, a mere 1% increase over the previous year. But that’s simply because the defense budget for this year has increased by a third from the original 3.5 trillion rubles since the February invasion of Ukraine.
By contrast, the internal security budget is expected to grow by 50.1% year-on-year to 4.42 trillion rubles.
Putin argued that sanctions against Russia are hitting the West like a boomerang. The West is struggling to cope with the worst inflation in decades as energy and food costs skyrocket. That said, the Russian economy is also not unscathed.
Russia’s gross domestic product (GDP) fell 4% in the third quarter from a year earlier, reflecting Western sanctions and the government’s decision to recall 300,000 reservists. Hundreds of thousands of people are also fleeing the country to avoid conscription.
In the 2023 budget, expenditures related to “national economy” such as roads, agriculture and research and development are expected to decrease by 23% to 3.5 trillion rubles. Sales related to healthcare decreased by 9% to 1.5 trillion rubles, while sales related to education decreased by 2% to 1.4 trillion rubles.
According to a joint study by the Russian Presidential Academy (Ranepa) and the Gaidar Institute, spending on infrastructure and industry will decrease by 23.5% and 18.5% respectively. The institutes said the budget cuts “could cause significant difficulties” as the government attempts to open new markets outside the West.
Investment in research and development is also expected to be cut, and with sanctions preventing the latest technologies from entering the country, “many key industries will not be able to get the funds to develop domestic technology,” said Renepa.
Putin, who ran for a fourth term in 2018, has set a goal of making Russia the world’s fifth largest economy by 2024. He has pledged to invest more than $400 billion (about $55.6 trillion yen) into “national projects”.
These goals have been pushed back to 2030 due to the coronavirus pandemic, but analysts say the risk of missing them again is increasing as the related budget is cut by 10% next year.
Expenditures related to social security, such as pensions and welfare, are a cornerstone of President Putin’s domestic economic policy and have been used to appeal to voters in previous presidential elections. Next year’s budget will amount to 7.3 trillion rubles, an 8 percent increase over the previous year, but is still less than the combined military and security budget.
According to Ranepa and the Gaidar Institute, funding for the national education program will be cut, but the budget for “patriotic education” in schools will be reduced to reflect Russia’s view on current affairs and historical events. it is expected to increase by 513% from this year.
The Russian State Research University Higher School of Economics said that the reduction in medical costs “cannot be justified in light of the increase in the death rate due to the two factors of the corona crisis and poor access to medical services”.
Analysts expect Russia to double its fiscal deficit next year to 3 trillion rubles, or 2% of GDP, as sanctions squeeze revenues, but analysts say it could reach 4.5 trillion rubles .
To finance the budget deficit, the Treasury already has a sovereign wealth fund, the National Wealth Fund, and last week it borrowed $14 billion in ruble-denominated bonds (OFZ).
It was the largest one-day bond issuance on record, and the defense ministry said on Twitter that it was a sign Russia was borrowing to fund defense spending.
Russia’s public debt is expected to reach 17% of GDP next year, which is low by international standards. Analysts say debt service costs will rise to 6.8% of total spending in 2025 from 5.1% today, more than spending on health and education.
“From 2023 to 2025, government debt will grow faster than the country’s economic growth, indicating less efficient use of borrowed funds,” the Russian Finance University said, which will hurt economic growth.
(Journalist Darya Korsunskaya)
