GP Short Notes # 736, 5 July 2023
Russian military expenditure during the Ukraine War: Five Takeaways
On 30 June, the Stockholm International Peace Research Institute (SIPRI) published a report, "Russia's military expenditure during its war against Ukraine," that examines Russian military expenditure during the Ukraine war and its funding sources.
The report on Russian military expenditure during its war against Ukraine and sheds light on the sources of funding for these military activities. It also highlights the continued focus of Russian President Vladimir Putin on pre-war policy goals, such as national welfare and technological sovereignty. The report provides valuable insights into the financial aspects of Russia's involvement in the conflict and its strategic priorities.
Following are the five key takeaways from the report:
Sustainable resource commitment by Russia
Despite economic sanctions, Russia has effectively managed its resources during the war in Ukraine. President Putin and his government have prioritized pre-war policy goals, minimized economic costs, and fought the conflict in a financially limited manner. Defence spending increased as the conflict progressed, reaching 17 per cent of total government expenditure. Russia has sustained its commitment to the war while maintaining business as usual.
Stable defence budgeting despite sanctions
The Russian government's approach to budgeting for 2023-2025 remained stable despite the ongoing war in Ukraine and the impact of severe sanctions. The budget forecast was initially pessimistic but became more optimistic over time, predicting a recovery in the economy. Defence spending was expected to increase in 2023 but decline in subsequent years, indicating a potential shift in military operations. Surprisingly, spending on social policy increased, while spending on the economy decreased. Limited details were provided on total military funding, but some changes were observed in funding lines related to housing, health, and mass media within the defence budget.
Russia's 2023 federal budget implementation encountered difficulties due to a larger-than-expected deficit of RUB 3424 billion from January to April. Declining oil and gas earnings, currency depreciation, and efforts to reduce reliance on unfavorable currencies contributed to the shortfall. However, the government displayed cautious budget management, minimizing the budget listings compared to the previous year. Despite the deficit, funding for the ongoing war is unlikely to be significantly affected, as the government can borrow or draw from the National Welfare Fund. A budget crisis in 2023 is improbable.
Complexity of war funding
The total military expenditure in the 2023 budget is estimated to be 6648 billion roubles, representing 23 per cent of the total government budget and 4.4 per cent of forecast GDP. It is important, however, to note that this total military expenditure does not solely reflect the cost of the war in Ukraine. Some military spending is unrelated to the conflict, while certain expenses related to the war are covered by budget chapters other than "national defence." The funding of military activities associated with the war from sources other than the federal budget, such as regional budgets and voluntary donations, further complicates the assessment of total military expenditure. Therefore, relying solely on the official budget sources may result in underestimating the overall funding for military operations.
Potential risks in the future
Russia's future federal budget preparations are outlined in the report, highlighting an optimistic outlook based on the economy's performance. President Putin and the government discussed positive GDP growth forecasts. However, caution is needed as some assumptions may have been overly optimistic. The Bank of Russia's report raised concerns about inflationary risks and a larger budget deficit. Adjustments to the budget planning process are expected based on evolving economic conditions.
Complicated analysis due to restricted information
Financial limitations suggest Russia has fought the war as a more limited operation. Limited access to budget information complicates analysis, but updates on budget spending in 2022 and early 2023 are provided, along with prospects for future spending. The Russian government has restricted information on budget spending and access to relevant documents. The budget law for 2023-2025 lacks detailed information on defence or the war.
Julian Cooper, “Russia’s Military Expenditure During Its War Against Ukraine,” SIPRI, June 2023