Does Russia have no more money for war?

Putin still has resources available to finance the war in Ukraine?

The question is legitimate and the answer not obvious, while with the new year just beginning the fate of the conflict becomes uncertain. According to Bloomberg, the Russia it is reportedly planning to take more money from some commodity producers and state-owned companies and cut spending on sectors other than defense as the costs of invading Ukraine rise.

What’s true? Meanwhile, the newspaper recalls that Moscow’s budget is increasingly reduced, while Putin’s conflict is entering its second year and the economy is contracting under heavy US and European sanctions. Dividends and a special tax paid by Gazprom already helped inflate a fiscal surplus late last year, before heavy spending commitments in December likely sent the budget into the red.

How many resources does it need Russia at war not to succumb?

Russia in trouble: Putin needs more money for war

According to Bloomberg rumors, Putin is aiming for higher dividends from state-owned companies and a “one-time payment” by the producers of fertilizers and charcoal.

In the document examined, it is underlined that this fiscal effort is part of the “revenue mobilization” plan that the Russia is organizing to finance the brunt of the conflict.

In addition, there would be a demand for 175 billion rubles ($2.4 billion) – extra budget – to resettle 100,000 people from Kherson to Russia, an apparent admission that the Kremlin has little hope of retaking the Ukrainian region its forces abandoned in the fall, just weeks after annexing it illegally.

Some of the additional money is needed to cover war-related costs, according to people familiar with the matter. No decision has yet been made on the size of the dividends or extraordinary levy as the amount will depend on how the budget fared in the full year 2022.

Authorities will seek to target dividends above 50% of net income for state-owned companies whenever possible, according to the reports.

Putin meanwhile he has promised that there will be no restrictions on military spending for the war, even if the resources for education and medicine are becoming less and less.

Is the Russian Economy Really Suffering?

With international debt markets all but closed to Russia, there is growing urgency to ensure the government’s access to finance while its energy revenues I’m under pressure.

The Finance Ministry, which last year projected a budget gap of 0.9% of gross domestic product, now estimates the deficit at 2% in both 2022 and 2023. In total, last year’s spending likely reached about 30 trillion rubles, Finance Minister Anton Siluanov said in late December, or about 27 percent more than initially planned.

It should also be highlighted that in the months just preceding the invasion at the end of 2021, the Russian mining companies, including coal and fertilizer producers, have been hit by an increase in the tax rate on mining. The government has since refused to ease the burden even as sanctions have halted sales and forced production cuts.

What will happen to the Russian coffers? It’s not easy to predict. However, the analyst Andrei Kolesnikov on Ispi specified at the end of December that even with a slow and inertial conflict, there will be consequences in Russia:

“It will be a process of erosion such as what next year [2023] will devour the social and state fabric of the Putin’s Russia: the crumbling of socio-economic indicators, including the real disposable income of ordinary people; the slow deterioration of consumer perception; the disintegration of the labor market, accompanied by a technologically regressive substitution of imports and the primitivisation of the economy and, consequently, of jobs, phenomena which added together will lead to the diffusion of a state of anxiety and discontent.”

All this, according to the expert, will take place without major shocks or protests, but with a slow adaptation, a crucial characteristic of Russia and its resistance.