17/11/2023 – 14:51
Russian Parliament votes on 2024 budget, prioritizing military and security spending. Cuts in the areas of health, education and popular economy spark warning about a return to the 1990s. The Duma (Russian Parliament) debates this Friday (11/17) in third reading the proposed State budget for 2024. The spending should arrive 36.6 trillion rubles (around R$2 trillion), with revenue of 35 billion.
The Russian government wants to cover the deficit of 1.6 trillion rubles (which corresponds to 0.9% of the country’s Gross Domestic Product) with loans and resources from the National Social Welfare Fund. These resources come from income generated from oil and natural gas and from the management of other resources.
According to analysts, the 2024 budget will be focused on military spending: 30% of shared expenses – 10.8 trillion rubles or 6% of GDP – will be allocated to the military. Another 3.4 billion rubles will go to national security and security institutions.
Spending on social benefits is expected to increase from 6.5 trillion rubles to 7.7 trillion (21% of expenditure) in 2024 – still falling short of military spending.
Russian Finance Minister Anton Siluanov said during a meeting with the State Duma Budget Committee that “victory” and “battlefront” are among the goals of the budget proposal. Later, however, he assured that the budget should not be considered as being focused on military spending, since “social issues take precedence in our expenses”.
The numbers, however, show that this is half true. In absolute terms, spending in the social area is expected to increase by 1.4 trillion rubles if several sectors such as education, health services, social policies and sports are added. Even so, the share of these expenses in the budget as a whole will fall from 31.7% this year to 29.9% in 2024.
Back to the 1990s?
The increase in military spending in the budget is not surprising considering the current war in Ukraine. However, the proportions of the increase in 2024 compared to 2023 were unexpected for many economists.
This opinion is reinforced by Andrei Yakovlev, one of the founders of the Moscow School of Economics and researcher at the Davis Center for Russian and Eurasian Studies at Harvard University.
The expert assesses that it is quite likely that a devaluation of the ruble will become necessary to fill the budget. This could generate serious macroeconomic risks associated with a rise in inflation as early as 2025.
For Yakovlev, the situation brings back memories of the 1990s, when the state printed money to pay salaries, which led to a classic inflationary spiral. “The Kremlin makes us fear the terrible 1990s, but that’s where they’re taking the economy right now,” he told DW.
Russian authorities are also expected to try to replace lost income from declining oil and gas exports due to international sanctions, among other things, with domestic resources.
“Officials talk openly about collecting additional fees. This applies to both companies and the population,” says Yakovlev.
The economist also highlights that budget cuts are planned in the areas of health, education and popular economy. “New road construction projects and the development of housing finance programs will most likely be scaled back,” he said.
Labor shortage
The budget proposal for 2024 can be described as focused on the military sector, assesses Natalya Subarevich, from Moscow Public University, in an interview with DW. According to the specialist in socioeconomic development, it would only be possible to talk about a war economy if there was mass nationalization and the adaptation of all sectors to arms demand, which is not yet the case.
This year, according to Subarevich, the decline in the population’s income should exceed last year’s. The sharp increase in monthly state benefits for poor families with children under 17 is expected to contribute to this, as are the indexation of pensions and salary increases in the defense sector.
“Hundreds of thousands of mercenary soldiers and conscripts receive benefits that are quite substantial by Russian standards. In general, the population’s income is growing, but not for everyone,” she notes.
For Subarevich, a serious problem in Russia is the growing shortage of labor, also due to war efforts.
Loss of “human capital”
“Almost a million men have disappeared from the real economy. Some fled, others are in combat. According to demographic estimates, between 400,000 and 600,000 middle-class people with the best educational levels left the country. Only a few returned. Russia is losing ‘human capital’, which is what most governs development,” said Subarevich.
According to economist Alexandra Osmolovskaya-Suslina, despite the record sums allocated to the military and security forces, social policies remain a high priority in the overall structure of government spending.
“Furthermore, this budget proposal cannot be described as being development-oriented,” he told DW.
The injection of money into the military-industrial complex will lead to GDP growth, but will remain only a formal indicator. It cannot be seen as reliable evidence of increasing citizens’ prosperity.
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