In a decisive move, Russian President Vladimir Putin has sanctioned a record increase in the nation’s defense budget for the year 2025, with defense allocations soaring to 13.5 trillion rubles.
The decision to boost defense spending comes as Russia continues its involvement in the protracted conflict in Ukraine, set to enter its fourth year next February. Despite the conflict and accompanying Western sanctions, Russia’s economy, primarily driven by military activities, remains resilient. However, economic indicators reveal underlying strain as inflation pressures mount and the ruble continues its decline, reaching a 32-month low.
The newly approved budget signifies a substantial increase, with defense taking up 32.5% of Russia’s federal budget for 2025, a rise from 28.3% the previous year. Analysts from the Institute for the Study of War caution that increased defense spending does not necessarily correlate with enhanced military capabilities. Much of the budget is expected to be allocated towards benefits for soldiers, veterans, and their families, potentially impacting the sustainability of other social programs that could influence Russia’s ability to sustain its military efforts in Ukraine.
Simultaneously, Russia’s central bank finds itself responding to economic overheating by raising the key interest rate to a record 21% to tackle inflation. The central bank’s governor noted that the economy stands at a crucial threshold, with expectations to lower the interest rate once inflation shows signs of easing. Meanwhile, President Putin has urged the populace to remain calm amidst the ruble’s decline, although the economic reality remains challenging.
In the broader economic landscape, Andrei Kostin, CEO of VTB, Russia’s second-largest bank, highlighted the inevitability of economic repercussions due to the ongoing war and current economic climate. He anticipates a slowdown in Russia’s GDP growth to 1.9% in 2025, contrasting with the higher forecasted growth rates for 2024. The International Monetary Fund also predicts a more modest GDP growth in the coming years, indicating the economic challenges that lie ahead for Russia.
The decision to increase defense spending underscores Russia’s commitment to its military objectives despite the economic turbulence. However, with inflation rising and the ruble under pressure, the sustainability of these decisions and their impact on broader social programs remain points of concern.
Source: Businessinsider
