The ongoing conflict in Ukraine, now stretching into its third year, is proving to be a significant financial burden on Russian taxpayers. Janis Kluge, a researcher at the German Institute for International and Security Affairs, reported that during the first half of 2024, the federal budget allocated an unprecedented 5.3 trillion rubles [$55.65 billion] towards defense, based on e-budget system data.
When compared to the same time frame last year, Russia’s military expenditure surged by 36%, translating to an additional 1.4 trillion rubles [$16.77 billion]. According to Kluge’s calculations, the government is shelling out an average of 203 billion rubles weekly [$2.25 billion], 29 billion rubles daily [$322.6 million], or 1.2 billion rubles hourly [$13.3 million] to support the military and procure weapons.
In just six months, Russia’s military spending has surged dramatically. It’s now consuming almost one and a half times the annual budget allocated for the national economy support program [3.89 trillion rubles or $42.3 billion]. To put that into perspective, that’s more than three times the annual budget of the entire higher education system in the country [1.546 trillion rubles or $17.2 billion], eighteen years’ worth of the National Health Project budget [290 billion rubles or $3.2 billion], and over ninety years of the budget for a typical poor region like the Republic of Tuva [56 billion rubles or $623 million].
What’s particularly striking, as Kluge points out, is the sharp rise in secret spending. This covert funding, primarily used for purchasing weapons for the front lines, has reached about 1 trillion rubles [$11 billion] per quarter. On the public side of the budget, state defense procurement funds are seeing a significant increase—up 54% from last year and a staggering 126% compared to 2022.
Military spending for recruitment, including a significant increase in “volunteers” and contract soldiers to offset front-line losses, has surged by 25% compared to last year and an astonishing 175% since 2021.
Moreover, there’s been a notable spike in spending on international military-technical cooperation. This surge likely includes funds allocated for purchasing munitions and missiles from countries like Iran and North Korea. Expert Kluge estimates that this expenditure reached almost 120 billion rubles [$1.3 billion] in the first quarter and escalated to more than 150 billion rubles [$1.7 billion] in the second quarter.
By collaborating with nations like Iran and North Korea for military supplies, Russia signals a pivot towards more isolated alliances. This shift also suggests a potential breakdown in relations with Western powers, adding layers of complexity to an already intricate geopolitical landscape.
On the home front, the Kremlin’s substantial military investments could boost national pride and win favor with certain groups. However, this focus might also fuel public frustration if people begin to feel the squeeze of economic hardships due to reduced funding in crucial social sectors.
The Russian government earmarked a staggering 10.8 trillion rubles [$120 billion] for military spending in the 2024 budget. This represents almost 30% of total spending, a record high since the Soviet era. According to Kluge’s estimates, if we consider the seasonal variations and historical data, the actual military spending could soar to 13.3 trillion rubles [$148 billion] by year’s end, accounting for 7-8% of GDP. That’s on par with the military budgets of some African dictatorships like Algeria [8.2% of GDP] and South Sudan [6.3% of GDP].
Currently, Russia seems to be managing this massive military expenditure without major fiscal strain. Compared to 2021, military spending has tripled. Remarkably, for four out of the first eight months of this year, the federal budget was in surplus, meaning revenues exceeded expenses. By the end of August, the total deficit was a relatively modest 331 billion rubles [$3.6 billion], just one-sixth of the annual projection.
However, declining oil prices could spell trouble for the budget. Rosbank analysts point out that the price of Russian Urals crude oil dipped below $60 per barrel in September for the first time this year, marking an 18% decrease from the end of August.
The Treasury has set the oil-dependent budget at $70 per barrel, a price that authorities are incorporating into next year’s planning. Current oil prices are “definitely not comfortable for the federal budget,” particularly when considering costs related to the “wastewater treatment system,” Rosbank noted.
A significant concern for the Kremlin is its reliance on oil revenues to fund military expenditures. With oil prices dropping, Russia might face notable challenges in sustaining its budgetary commitments, especially given the anticipated rise in military spending, which is already at substantial levels.
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