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The Russian government is planning on significantly increasing military spending with the help of optimistic revenue projections.
Moscow had long enjoyed prudent financial management after the Russian default in the late 1990s.
The Russian government this week finalized the budget for 2024-2026 and submitted it to the State Duma for approval. Particularly striking are the plans for revenue collection: in 2024 the government is expecting to raise 35 trillion rubles (34% more than this year). This is based on the Economic Development Ministry’s optimistic forecasts for 2024 when they predict 2.3% GDP growth, oil prices to average $85 a barrel and the average U.S. dollar exchange rate to be 90.1 rubles, reports Russian independent news outlet The Bell.
Raising so much money seems an incredible goal while President Vladimir Putin continues his war in Ukraine and Western countries and their allies prepare more sanctions. But the Kremlin is assuming that, at the very least, Russian oil will continue to be sold to India and China; the Western price cap on Russian oil will not change (and will continue to be ineffective); Western countries will not risk further oil embargoes; and that the oil price will remain high. Nor does the government expect any new restrictions on imports.
The increased military spending is not just about producing more hardware, Pavel Luzin, a military expert at the Fletcher School told The Bell. By earmarking almost 11 trillion rubles for the military, the government is trying to price in the added costs of endless import substitution, the operational inefficiency of the defense sector, and large payments to soldiers and the families of those killed in action in Ukraine.
The government will also invest large amounts in the Ukrainian territories captured by Russia since the full-scale invasion. The budget even has a separate section for the socio-economic development of these regions: to rebuild what Russia itself destroyed, 37.5 billion rubles will be allocated in 2024.
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