BERLIN (Reuters) -Russia is clearly developing into a war economy, with spending on defence increasing while state revenues shrink, the German Economic Institute IW said in a report on Thursday.
Russia had a budget deficit of almost 4% of GDP in 2022 and in 2023 this percentage is likely to increase along with spending, according to the German institute IW. This compares with the lower deficit figure published by the Russian finance ministry of 2.3% of GDP.
An analysis from the European ratings agency Scope seen by Reuters on Friday said the Russian budget deficit was expected to rise to 3.5% of GDP in 2023. This figure is also significantly higher than the Russian government’s forecast of 2% of GDP.
Russia will this year hike spending on internal and external security by 25% to 124.7 billion euros ($132.1 billion), according to the report, to which Reuters had exclusive access and which cited projections that Russia’s state Duma parliament signed off on in October.
Until 2025, this amount of defence spending is expected to remain constant, representing over 14% of the budget, the economic institute said.
While defence spending rises, revenues are falling. Compared to 2022, revenues from oil and gas exports will decline by over 20% due to Western sanctions imposed for Russia’s invasion of Ukraine, the IW said.
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Russian still has sufficient reserves, but the future will be marked by great fiscal uncertainty, IW economists Simon Iglesias and Melinda Fremerey said.
A Reuters budget analysis published in November showed that Russia will spend a combined 9.4 trillion roubles ($140 billion) on defence and security this year alone – nearly a third of the budget – meaning less money for health, education and research.
($1 = 0.9441 euros)
(Reporting by Klaus Lauer, Rene Wagner and Maria Martinez; Editing by John Stonestreet and Alex Richardson)