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The original was posted on /r/ukrainewarvideoreport by /u/Khabooem on 2024-10-16 04:13:35+00:00.
The Russian war economy is coming to an end, argues analyst Anders Åslund from the Swedish think tank Stockholm Free World Forum. According to Åslund, the current sanctions regime takes away 2 to 3 percent of Russia's GDP each year, leading to near-stagnation. Russia's GDP has fallen from $2.3 trillion in 2013 to $1.9 trillion today, and with that, Russia is no longer a superpower. “It is what the late Senator John McCain memorably called a gas station masquerading as a country.”
Since 2014, Russia has been burdened by an increasing number of Western sanctions. Opinions differ on what this has done to the Russian economy. According to Åslund, Russia is doomed to near-stagnation because the sanctions cut 2 to 3 percent off the GDP each year. And the situation will only get worse, says the analyst. He points out that the financial, technological, and demographic obstacles for the Russian economy are greater than generally assumed.
Biggest Loser
Russia will be the biggest loser, regardless of the outcome on the battlefield, says Åslund. According to him, the Russian economy has grown by only 1 percent on average since 2014, while the GDP has dramatically decreased—from $2.3 trillion in 2013 to $1.86 trillion now, an amount comparable to the GDP of the Benelux. Russia is no longer a superpower, says Åslund, but “a gas station masquerading as a country.” And there’s more to criticize: Russia has proven to be an unreliable energy supplier, thereby losing its credibility.
Apart from oil and gas production, the only growth sectors in the Russian economy are the military and related infrastructure. But according to Åslund, these sectors also paint a distorted picture of the economic reality, as state companies sell to the state at (likely inflated) regulated prices. Practices from the Soviet era, argues Åslund, who believes that modern-day Russia is struggling with high hidden inflation.
Hidden Inflation
“One indicator of this is that the Russian central bank maintains an interest rate of 19 percent, while claiming that the annual inflation rate is only 9.1 percent. No one should believe such figures. The authorities are likely packaging inflation as real growth,” according to Åslund, who adds that the hidden inflation also indicates that Western financial sanctions are much more effective than many observers think.
Although Russia's total foreign debt fell from $729 billion at the end of 2013 to just $303 billion by the end of March 2024, and the national debt is only fourteen percent of GDP, Moscow doesn’t benefit much from this. Because, as Åslund says, Russia cannot borrow on international capital markets.
Instead, it must rely on tax revenues and reserves. And half of its foreign currency reserves have been frozen by the West since February 2022. More bad news: the liquid reserves in the Russian national wealth fund have shrunk from $183 billion in 2021 to $55 billion now. And most of that $55 billion is not liquid but invested. Due to all these constraints, Russia has had to limit its annual budget deficit to 2 percent of GDP. With a GDP of $1.9 trillion, this costs about $40 billion per year, which means that Russian state reserves are likely to be exhausted by next year.
Technological Stagnation
Åslund also highlights the progressive technological stagnation in Russia. Not only have many highly educated young Russians fled abroad for fear of mobilization and a one-way ticket to muddy trenches, but the Soviet-like repression and Putin's kleptocracy stifle technological innovation. And for the import of technology, sanction-hit Russia depends on countries like China, Turkey, and its Central Asian neighbors.
Just like the tech sector, Russia's arms exports have largely collapsed, as Moscow needs all the weapons at the front. In fact, Russia has become a net arms importer, sourcing its artillery shells and other hardware from countries like North Korea and Iran.
Åslund finally predicts that Russia is likely to spend around $190 billion on warfare this year, which amounts to about 10 percent of its GDP. At the same time, the analyst points out that when Russia can no longer finance its budget deficit, it will have to cut government spending. This is problematic because non-military spending has already been reduced to the bone.