As of: March 19, 2024, 6:08 a.m
By: Lars-Eric Nievelstein
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According to current figures, Russia's economy appears to be more resilient than expected.
However, the country is running out of money.
One expert draws a comparison to the Soviet Union.
Moscow – Since the start of the Ukraine war, the EU has been trying to weaken Russia through sanctions.
Russia recently presented current economic data that was intended to show how resilient the country is despite all the sanctions.
On the other hand, Kremlin boss Vladimir Putin has already had to tap into an iron reserve to keep the economy going.
A Russian economist has now revealed what has to happen for Russia to actually run out of money.
Growth despite sanctions – how long can Vladimir Putin last?
The numbers are on the table: the Russian economy is expected to have grown by 3.6 percent in 2023.
The Russian statistics office provided corresponding data in February.
As always, figures coming out of Russia should be viewed with caution and, as always, opinion among economists was divided.
Some of the experts assumed it was a forgery, others said they found no evidence of manipulation.
Vladimir Putin at a press conference.
According to current figures, Russia's economy appears to be more resilient than expected.
However, the country is running out of money.
© IMAGO/Xinhua
However, the Russian Prosperity Fund also provides an indication of the effect that Western sanctions have already had on the country's economy.
Between February 2022 and the beginning of 2024, the fund's easily liquidated assets shrank from $100.4 billion to around $56 billion.
According to Oleg Vyugin, a Russian economist and former vice president of the Central Bank, it was never really clear what the Prosperity Fund was specifically intended for.
In an interview with Die
Welt
, he explained that it was an “iron reserve” just in case.
“The fact that this money was now used for the budget fueled demand and wages and supported the economy.”
Prosperity fund is running out – “in reality there is always enough”
Economists currently assume that the funds in the prosperity fund will only last for less than two years.
In addition, Western countries had frozen $300 billion in Russian reserves.
“Sanctions against Moscow and Russia’s high military spending are weakening Vladimir Putin’s financial muscle,” wrote the
Reuters
news agency .
This year, the Russian Ministry of Finance expects 1.3 trillion rubles in spending on budget deficits plus 900 billion rubles for corporate and investment projects.
Nevertheless, Vyugin does not believe that Russia will run out of money too quickly.
“The money will easily last for a few years,” explained the economist.
“And in reality it is always enough.” There are many ways to get more money, for example a tax increase.
For the economy to really take off, defense spending would have to rise from six percent to 20 percent, as was the case in the Soviet Union.
Russia is finding new ways to circumvent sanctions - but they are expensive
On the other hand, the economist expressed distrust of figures published by Russia, for example regarding inflation.
Officially, inflation is around 7.5 percent, Vyugin said: “The true inflation can be seen, among other things, in municipal taxes, which rose by 40 percent in some regions.” The former central bank chief stated that the Western sanctions were definitely take their toll.
Although they can be circumvented, these “ever new” ways that Russia has to find to avoid the sanctions are costing the country more and more money.
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“I think new ways are being found.
“They’re just getting more and more expensive,” said Vyugin.
He continued to provide insight into how difficult it is for Russia to circumvent Western export sanctions.
Russia has hardly succeeded in import substitution in areas such as electronics or chip production, for example.
“But that would be the basis for the economy to be competitive.” Russia could achieve that, but it would need a lot of time.
In the meantime, a number of Russian companies are going bankrupt.
West reacts to Russian economic tricks
Western decision-makers are currently considering which sanctions could continue to harm Russia.
Among other things, there is talk of sanctioning third countries - countries like India and China have so far served as intermediaries for Russia to continue trading with the West.
In addition, Ukraine repeatedly demands that Russia's billions be confiscated.
Economists are already seeing an “early stage” of economic decline in Russia.
Russia, on the other hand, is always looking for new ways to circumvent the sanctions.
A new railway line will give Russia easier access to India's trade center Mumbai and Iranian ports.