Russia is suffering huge economic and human losses in the war against Ukraine for the last two years. This war has had a huge impact on Russia’s economy. In 2022, Russia spent a quarter of its total wealth on war preparations and attacks. According to Russia’s Finance Ministry, the country’s National Wealth Fund has total assets of 12 trillion rubles ($117 billion), but its cash reserves are continuously decreasing.
decline in cash reserves
- Russia’s cash reserves have declined by 24% compared to January 2023, and stand at 3.8 trillion rubles.
- This figure has decreased by 57% compared to the beginning of 2022.
- Two years ago, Russia had cash reserves of 8.9 trillion rubles, which is now less than half.
pressure of military spending on the economy
- Due to the war, Russia had to make a big increase in its military budget, which has increased the pressure on its economy.
- There is difficulty in funding expenditure on public welfare schemes and other projects.
- 1.3 trillion rubles have been spent so far from the wealth fund to reduce the budget deficit.
Dependence on oil and gas exports
Russia’s economic condition is mainly supported by oil and gas exports.
- However, due to sanctions imposed by the US and Western countries, Russia had to sell its oil and gas at low prices to countries like India and China.
- Oil and gas exports exceeded the target, which has brought some relief to the economy, but it is not enough.
impact of sanctions
- Sanctions imposed by the US and its allies have seriously affected Russia’s funding of major projects and foreign investment.
- Many foreign companies have shied away from investing in Russia.
future challenges
Russia’s central bank says that if current conditions persist, the National Wealth Fund may decline further. An increase in military spending and a lack of foreign investment could put Russia’s economy in a fragile state.
