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Putin has signed a record defense budget for 2025 amid the ongoing war in Ukraine.
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Defense spending will rise to 13.5 trillion rubles, accounting for a third of the country’s budget.
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The Russian economy is facing inflation and a decline in the ruble, despite military-driven activities.
Russian President Vladimir Putin has signed a federal budget that will push defense spending to record levels next year.
The 2025 budget will bring the amount allocated for national defense to 13.5 trillion rubles, or $126.8 billion – up from 10.8 trillion rubles in 2024.
This means that defense will account for 32.5% of Russia’s federal budget next year, up from 28.3% this year.
The budget was presented in September and approved by Russian parliamentarians in the past ten days.
Russia’s record budget for its war in Ukraine comes as the conflict enters its fourth year next February.
Although Western countries have imposed a series of sanctions on Russia over its invasion of Ukraine, Putin’s regime is keeping Russia’s economy afloat, with most of its activity driven by military activity.
However, the Russian economy is under pressure as war activities are heating up the economy so much that inflation has risen. That prompted the Russian central bank to raise its key interest rate, which now stands at a record high of 21%.
Last month, Russia’s top central banker said the economy was at a “turning point” and expected to cut key interest rates as inflation slows.
Meanwhile, the ruble has sunk to a 32-month low, indicating that all is not well with the Russian economy. Putin has told his compatriots not to panic about the ruble’s fall.
Analysts at the Institute for the Study of War said on Sunday that the increase in Russian defense spending does not necessarily mean that the country’s military capabilities will increase, because a significant part of the budget will go to benefits for soldiers, veterans and their families. .
“Russia’s continued focus on defense spending is also likely to impact the effectiveness and sustainability of Russia’s social programs, which could impact the Kremlin’s ability to continue its war in Ukraine given increasing pressure on the Russian economy and Putin’s perceived tendency not to jeopardize the stability of his regime. ,” the analysts wrote in a note.
‘An absolutely unusual situation’
A top Russian banker told Reuters late last week that the protracted war and economic situation mean the Russian economy is expected to slow next year.
“It is impossible for the economy to withstand such events without consequences,” Andrei Kostin, the CEO of VTB – Russia’s second-largest bank by assets – told the news agency.
Despite this, the Russian economy is “healthy,” he added.
Kostin said he expects Russia’s GDP growth to slow to 1.9% in 2025 – still above the International Monetary Fund’s forecast of 1.3%. The IMF expects the Russian economy to grow by 3.6% in 2024.
Russia’s Economy Ministry predicts the country’s economy will grow by 3.9% this year and 2.5% next year.
“The war has been going on for almost three years and a large number of sanctions have been imposed. We live in an absolutely unusual situation,” Kostin told Reuters.
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