War with Ukraine gets increasingly more expensive for Russian state budget

Russia's full-scale war against Ukraine, now in its third year, is becoming increasingly more expensive for Russian taxpayers. For the first half of 2024, the government budget allocated a record RUB 5.3 trillion (approx. US$58 billion) to manufacture defence products.

Source: Janis Kluge, a researcher at the German Institute for International Security Affairs, conducted the comparable calculations using data from the Electronic Budget system, writes The Moscow Times

Details: Russia's military spending climbed by 36%, or RUB 1.4 trillion (approx. US$15.3 billion), over the first half of 2023. According to Kluge's calculations, the government spent an average of RUB 203 billion (approx. US$2.2 billion) every week on army maintenance and weapon purchases, RUB 29 billion (approx. US$318 million) per day, or RUB 1.2 billion (approx. US$13.1 million) per hour.

As a result, in six months, the Russian  military machine used up nearly one and a half annual budgets of the national economy support programme (RUB 3.89 trillion or US$42.7 billion), more than three annual budgets of the country's entire higher education system (RUB 1.546 trillion or US$16.9 billion), 18 annual budgets of the national Health Care project (RUB 290 billion or US$3.1 billion), and more than 90 annual budgets of a typical poor region, such as the Republic of Tuva (RUB 56 billion or US$614.6 million).

Covert costs have risen "especially sharply", Kluge explains, primarily to purchase weaponry for the front. They amount to about 1 trillion roubles per quarter. In the open part of the budget, spending for state defence orders has increased by 54% from the previous year and 126% from 2022.

The expense of military payments, particularly the massive recruiting of "volunteers" and contract soldiers whom the Kremlin uses to compensate for frontline casualties, increased by 25% compared to the previous year and by 175% compared to 2022.

Kluge claims that the costs of international military-technical cooperation have increased as well, potentially including subsidies for the procurement of ammunition and missiles from Iran and the DPRK. According to his estimates, about RUB 120 billion (approx. US$1.3 billion) of the budget was spent in the first quarter and more than 150 billion (approx. US$1.6 billion) in the second.

Initially, the government allocated RUB 10.8 trillion (approx. US$118.5 billion) of the 2024 budget for military spending, representing roughly 30% of total spending, a record since the Soviet Union.

However, considering the seasonality of budget allocations and historical statistics, Kluge calculates that military spending may exceed this level by over a third. By the end of the year, they may reach RUB 13.3 trillion (approx. US$145.9 billion), or 7-8% of GDP, which is comparable to the level of African military dictatorships (8.2% of GDP in Algeria and 6.3% of GDP in South Sudan).

According to Rosbank experts, a reduction in oil prices might be a fiscal problem. In September, the cost of a barrel of the Russian Urals variety went below US$60 for the first time since the beginning of the year, down 18% from the end of August. The Ministry of Finance planned the budget expecting oil prices to be around US$70, and the authorities included that price in the design for next year.

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