27/10/2024
Ellina N
An economist, financier, former associate professor Sat
Truth About Russia and Ukraine
the Economy, and the war in ukraine
Ukraine: I won’t discuss Ukraine’s economy in detail—that’s a topic best covered by Ukrainians themselves. But it should be clear to everyone, even those without an economics background, that Ukraine’s economic recovery is impossible without a complete victory in the war, liberation of all its territories within the 1991 borders, eradication of corruption, and establishment of lasting peace through Ukraine’s entry into NATO and the EU. Even General Ben Hodges confirmed that no serious company will invest in a country that is bombed and shelled daily. Of course, some businesses help right now, like the foundation of American billionaire and philanthropist Howard Buffett, which is funding the restoration of the Factor-Druk publishing house in Kharkiv, destroyed by a Russian strike. But this is more akin to charity.
Ukraine’s victory in the war and a clear defeat of Putin’s illegitimate regime are the primary, essential conditions for the country’s survival and that of its people.
Russia: I covered the state of Russia’s economy in detail in my post: Shocking Facts: Nabiullina, Stagflation of the Russian Economy, and the War in Ukraine.
Additionally, "due to rising inflation and economic overheating," the Central Bank of Russia has just raised the key interest rate to 21%! This is a record high!
According to its head, Elvira Nabiullina, this is not the end. Another rate hike is expected in December 2024.
The Central Bank is unable to control inflation!
Russia’s economy is in deep crisis, exacerbated by sanctions, military spending, and economic isolation. Elvira Nabiullina and other experts warn of stagflation, labor shortages, and exhausted industrial capacity. While military expenditures remain a priority, social services, healthcare, and education are severely underfunded, leading to deteriorating living conditions.
Summary of the video "Ultra-Military Budget: Who Will Pay for Russia’s Record Spending on the War Against Ukraine" by journalist Sasha Dubrovskaya, "Current Time":
Russian Budget Overview:
Russian Military Spending (2025-2027):
• Over the next three years, nearly 41% of Russia’s budget will go to military and security spending. This includes:
o 13.5 trillion rubles in 2025, 12.8 trillion in 2026, and 13.06 trillion in 2027 for military spending.
o An additional 7% of the budget (almost 11 trillion rubles) for internal security forces and police.
Hidden Military-Related Costs:
• War-related hidden expenses further increase the actual military budget:
o 1 trillion rubles over three years to "restore" Russian-occupied parts of Donetsk, Luhansk, Kherson, and Zaporizhzhia in Ukraine.
o 4 trillion rubles for the "Transport System Development" program, including railways in occupied territories and unmanned aviation systems.
o 800 million rubles for military logistics road repairs under the "Regional and Local Road Network" program.
o Additional costs for:
Signing bonuses for recruits, which are impossible to fully calculate due to secrecy.
Compensation for the dead and wounded, as well as costs for their treatment and rehabilitation.
Total Military-Related Expenditures: When these hidden costs are added, Russia’s total military and war-related spending could be even higher than 41% of the budget and significantly more than the 6.3% of GDP already allocated to official military and security expenses.
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Non-Military Spending:
• Healthcare (2025): 1.8 trillion rubles.
• Education (2025): 1.5 trillion rubles.
Both sectors will receive around 10 times less than military and war-related expenditures.
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What People and Businesses Will Pay:
• Rising taxes on citizens and businesses will help fund this spending:
o Utilities like water, electricity, gas, and waste disposal will cost Russians more – these services will increase by at least 36% over three years.
o Corporate profit taxes will more than double, from 2 trillion in 2024 to 4.6 trillion rubles by 2027.
o Income taxes on individuals will nearly triple, collecting 1 trillion rubles by 2027.
o Excise taxes on alcohol (+25%), to***co (+5%), gasoline (+40%), and imported goods (+50%) will all increase.
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When Putin Will Run Out of Money:
• With oil and gas revenues expected to drop from 27% to 22.6% of Russia's budget by 2027, the government may rely on the National Wealth Fund [most of it is gone already E.N.].
• If oil prices fall to $50 per barrel, Russia may deplete the fund (currently 10-12 trillion rubles) by 2027, having already spent 5 trillion rubles between 2023 and 2024. [I believe it will happen much faster, perhaps by the end of 2024. E.N.]
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This expanded view highlights that Russia’s actual military-related spending is far larger than official figures suggest, as hidden costs tied to the war in Ukraine push military expenditure even higher. Meanwhile, citizens and businesses will bear the brunt of this spending through increasing taxes and prices.
High taxes and rising utility costs burden citizens, while the government focuses on sustaining the war effort. Despite oil revenue providing short-term relief, the country faces a bleak future, with no signs of recovery under Putin's leadership. Economic collapse seems inevitable.
Learn the Truth and Stay Informed.
Shocking Facts: Nabiullina, Stagflation of the Russian Economy, and the War in Ukraine
As an economist who has taught at several universities in Russia, I emphasize: there has been no real economy in either the USSR or Russia. In the USSR, there were constant falsifications of data, lies, and manipulations, to the extent that companies, all of which were state-owned, kept two sets of accounting documents – a real one (for themselves) and a fake one (for reporting to the government). The “successes” of the modern economy of Putin's Russia are as much a lie as the claim that Russia has the “second army in the world.” All scientific and economic institutions, including well-known global institutes, base their assessments of the Russian economy on official Russian data. At the same time, Russia has classified many data. If the state of the Russian economy were excellent, Putin would have opened all the data and published them on every lamppost. However, even under such conditions, it is possible to learn something about the Russian economy. This post is based on the statements of the head of the Central Bank of Russia, Elvira Nabiullina, Professor Igor Lipsitz, and Russian opposition politician Vladimir Milov – the former Deputy Minister of Energy of Russia. Putin has brought us to this point: even the head of the Central Bank, Nabiullina, acknowledges the enormous and insurmountable problems of the Russian economy: • A monstrous shortage of labor and a catastrophic demographic situation • The inability to attract investments • Rising inflation that cannot be stopped even by sharply raising the Central Bank's interest rate • Huge difficulties in accessing foreign technologies and equipment • An insufficient level of labor productivity • Issues with ensuring property rights Nabiullina stated that the above problems cannot be solved by distributing “cheap” loans. She openly admitted that the Russian economy has reached a critical point and faces a number of serious problems that have become unsolvable under the current management approach. Exhaustion of Resources: Nabiullina effectively stated that all available resources in the economy are exhausted. This statement is very significant, and it sounds as if resources are not just limited, but already completely depleted. In the context of sanctions and economic isolation, against a backdrop of seemingly abundant external prosperity (full restaurants in Moscow), this acknowledgment is a worrying signal for the Russian economy. Limitation of Potential: Industrial capacities are fully utilized, which means that production growth is impossible, even if money is poured into the economy. Injecting money can only accelerate inflation but will not increase production. Importantly, the problem of labor resource shortages is also becoming unsolvable, worsened by the ongoing military actions, where a significant portion of the working population is engaged on the front, has left the country to avoid participating in the war, or has suffered from the consequences of the war. The government’s attacks on migrants have led to their mass exodus from Russia. Stagflation and Recession: Nabiullina mentioned the danger of stagflation (a combination of economic stagnation and high inflation) and deep recession, indicating that further economic growth is impossible under the current restrictions. Stagflation is one of the worst economic states, as growth is absent but prices continue to rise. Budget Normalization: By "budget normalization," Nabiullina effectively means the need to cut expenses, including on the war, to cope with the budget deficit. She warns that if this is not done, inflation will remain uncontrolled, and no measures to change interest rates will help stabilize the situation. Official figures in Russia are beginning to acknowledge serious and insurmountable economic problems that have been hidden beneath the surface of external prosperity. Professors Igor Lipsitz and Vladimir Milov confirm Nabiullina's assessment. Lipsitz emphasized that the country's economy is facing a deep crisis caused by a lack of labor resources and rising prices for goods and services. While there is funding for military expenditures, social payments are being cut, making it harder for the population to survive. He compared the situation to the 1990s: back then, there was hope for a better future despite hardships, but now the situation seems hopeless as the economy sinks into darkness. The proposals of the Russian government to nationalize private businesses could ultimately destroy an economy based on raw material exports. Russia is losing markets even in the arms sector and is becoming increasingly dependent on oil and gas revenues. High excise taxes on gasoline, to***co, and other goods, which are paid by the population, exacerbate the situation. “Right now, there is no light at the end of the tunnel, only darkness. Russia will head into darkness, not into the light, because companies will be destroyed, production will collapse. In fact, the economic prospects are very poor. Russia can continue to wage war for quite some time. There will be money for war, but everything else will be destroyed. So how will the people of Russia live in this situation? Everyone seems to assume that there is war, there is Putin, there is the army, there are military expenses, and the people will endure. But in reality, it’s not that easy. Russia will face a wave of housing and utilities catastrophes. For example, in the city of Chekhov, Moscow region, the situation is such that it is completely unclear whether the city will have heating or not. The utility workers came out and said: we cannot turn on the boilers — they will all explode.” Russia still lives only on oil. It is a raw material country, poor and primitive. Everything related to final products made in Russia is of little interest to anyone; it's the raw materials that matter. Even Russian weapons are gradually losing markets, and Russia does not produce anything else. As long as there are revenues from oil, Russia somehow patches the holes. But now we see that there is money for the army, but no longer for supporting the population, for education, for healthcare. The government wants to nationalize everything and recreate a command economy like in the USSR, which will finally kill economic life in Russia. This is just a complete catastrophe.” Milov: Against the backdrop of a budget deficit of 3.3 trillion rubles and rising inflation, experts predict an increase in the Central Bank's key rate to 25%. Investments are concentrated in the defense industry, while civilian sectors suffer from low profitability. The Ministry of Finance attracts record yields on government debt, signaling a crisis. The economy continues to slow down, exacerbated by a shortage of personnel and rising prices for basic goods. People in Russia, according to experts, do not understand the full depth of the economic problems. Russia is heading towards the abyss. Even Nabiullina understands that nothing will save the country anymore. I suggest she borrow Harry Potter’s magic wand and make it so the war never happened in the first place. So that all the dead come back to life, those who left return, and everyone can work together for the economy of Russia. But Putin has no intention of stopping or ending the war (which will not help now). Moreover, he has shifted the economy onto a "military track." It is too late to turn back. The collapse can still be delayed for a while, as long as the war goes on, the soldiers have not yet returned from the front, and money continues to come from oil sales (as long as prices do not drop). So forget about peace. Even if Ukraine capitulates (which will not happen), a durable peace with Russia cannot be expected as long as Putin is in power. Learn the Truth and Stay Informed.
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