Since the end of last year, the Russian budget has accumulated a deficit of several trillion rubles. The Russian budget is not receiving the necessary funds, while the expenses required to continue the war with Ukraine are steadily increasing. Russia is spending over $114.4 billion per year on the war against Ukraine (approximately $10 billion per month). Just in the period from January to June 2023, the Russian budget has spent more than it had planned for the entire year 2023. Despite this, Russia is doubling its military budget, making defense spending the largest category for the first time in history, accounting for almost 40% of the budget allocated to the war.
Western sanctions are significantly affecting the economic, industrial, and technological potential of the Russian Federation, leading to adverse trends. The trade balance has sharply decreased, the budget deficit has turned into a gaping hole, and the ruble has depreciated by 35%. The Head of the Central Bank, Elvira Nabiullina, has repeatedly pointed to deteriorating conditions in foreign trade as the main reason for the ruble's collapse. The primary reason is that there are very few market players, as well as money, and trade volumes have declined since the beginning of the war.
Russia has lost its position as a key supplier of energy resources to Europe. Over $300 billion of Russia's international reserves are frozen, representing nearly half of the aggressor's foreign exchange reserves. Due to falling oil and gas revenues, financial losses, reduced tax deductions, and increased expenses for mobilization efforts, Russia is forced to tap into its oil funds from the National Wealth Fund and increase borrowing in the domestic market. Doing business in Russia has become a problem for many Western companies after Russia's full-scale invasion of Ukraine. Even companies that have not been directly affected by sanctions are faced with the choice of staying or leaving. Foreigners across Russia are selling their businesses.
Despite the Kremlin's attempts to persuade everyone that inflation for this year will be 4-5%, the actual rate is already at 15%. Statements from top officials increasingly resemble a different reality where everything is cheap, there is no price increase, and everyone is content with social benefits from the state. Officials make statements that not only do not align with reality but completely deny it. They often manipulate figures, selecting specific years or industries for comparison to demonstrate growth or positive trends. Prices have already risen by 20% or more. Further depreciation of the ruble will inevitably lead to price hikes for many products and goods by the end of this year. Russians should prepare for price increases not only for imported products but also for many domestic goods. According to experts, within the scope of inflation, meat, fish, sugar, fruits and vegetables, bread, and baby food will become more expensive.
The reasons for this are not only related to the depreciation of the ruble but also to logistics issues, a shortage of personnel in agriculture, and an increase in waste disposal fees. Pavel Shapkin, the Chairman of the National Consumer Rights Protection Union, has forecasted that the prices of all imported goods in the country may increase by 30% by the end of the year. Growth is primarily seen in sectors linked to the military-industrial complex, where production is funded by government orders. However, this growth will come to a halt as soon as the budget runs out of funds. Moreover, this production is financed at the expense of civil infrastructure projects and other social expenditures, which the Ministry of Finance is already planning to cut by at least 10%.
As a result of sanctions, Russia's economy and social sphere are rapidly declining. The unemployment level in 2024 is expected to be the highest since 1999. The number of non-payers of bank loans in the first half of 2023 reached 17.7 million, compared to 14.4 million during the same period last year, according to data from the Federal Bailiffs Service (FSSP). In the first three quarters of 2023, 5,071 Russian legal entities were declared bankrupt. The budget is struggling to provide unemployment benefits, and nobody knows how long the National Welfare Fund's resources will last. The only solution is to draft the growing mass of unemployed into military service to avoid paying benefits and prevent protests. Mobilization will primarily target debtors (credit, alimony, housing and utilities debts), the impoverished sections of the population, and migrants from Central Asian countries who will be offered Russian citizenship in exchange for participating in combat operations. This gives conscription officers wide opportunities to find potential candidates for the "service in exchange for debt forgiveness" deal.
Economic growth is facing an unprecedented level of labor shortages, reaching maximum values in recorded history. Vladimir Putin's government is resorting to increasingly atypical measures to generate revenue to finance the rapidly rising war expenditures. One way to saturate the labor market could be recruitment and expanding the engagement of foreign workers, as well as labor migrants from countries with a visa regime. Upon arriving in Russia, many citizens of CIS countries aim to obtain Russian citizenship as quickly as possible and acquire firearms "for self-defense," which leads to worsening crime rates and the formation of criminal groups. Today's mobilization may turn into banditry tomorrow, with embittered individuals possessing weapons and combat experience forming even more dangerous gangs than those seen in the 1990s.
The Kremlin is attempting to carry out a "hybrid mobilization" by coercing new groups of "dependent" population to sign contracts with the Ministry of Defense. The scheme of "service recruitment" for bank debtors is an attempt to replicate the experience of recruiting for the army and private military companies from Russian prisons. There is a significant probability of mobilizing women to the frontlines, as a significant percentage of mobilized men have already perished. The Selective Service Organization (SVO) has become a mechanism for creating a "demographic pit," with the working-age population in Russia projected to decrease by 6.5% over the next decade.
Putin intends to lead a long war that requires significant human resources. It's long overdue for Russians to open their eyes and realize that authorities who choose a criminal war against innocent people instead of their citizens' future have no right to sit in the comfortable offices of the Kremlin. In the interests of the entire civilized world, Russia should be subjected to complete international isolation, cut off from technology, investments, and markets.
Source: toptribune.today
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