Despite the challenges posed by the ongoing conflict in Ukraine, Russia’s economy has shown signs of growth in 2023. This is largely due to Putin’s decision to shift the country towards a mobilized war economy. However, this trend may not be sustainable in the long term, according to warnings from BBC economics editor Faisal Islam.
The Russian state has increased spending significantly, particularly in military and security sectors, which has come at the expense of other areas of the population. Funding for education, healthcare, and social programs has been redirected towards the production of tanks, missile systems, and defenses in occupied Ukraine.
Despite facing oil sanctions imposed by Western countries, Russia has managed to sustain its economy through resource extraction levels that remain almost unchanged from before the war began. In addition to this, Russia has adapted by using a “shadow fleet” to transport oil to India and China, effectively circumventing the sanctions.
While Western leaders have expressed concerns about Russia’s current economic situation, there are some positive indicators as well. For example, petroleum taxes have exceeded pre-war levels and ongoing foreign exchange flow from oil, gas, and diamonds has helped alleviate pressure on the rouble’s value.
Looking ahead to 2024 and beyond, there are challenges ahead for Russia’s economy. The demand for oil and gas is expected to peak soon as global energy prices decline due to supply chain disruptions caused by COVID-19 pandemic lockdowns. Additionally, Russia’s competitors will increase their production of these resources posing a challenge to Russia’s economy.
Moreover, producing tanks and munitions can be considered an unproductive aspect of the economy that could lead to long-term problems if it continues down this path.
However, Islam cautions against expecting a collapse of the Russian economy immediately or even by the end of 2023.
In conclusion while Putin’s decision helped boost economic growth temporarily but it is not sustainable in long term as it diverts funds away from other essential areas like education and healthcare leading to an unsustainable future for Russian Economy.