Russian elites face unease as war strains economy and reforms loom
The Russian elites and large businesses are experiencing growing unease due to the ongoing war in Ukraine and the sanctions impacting the country's economy. Although the Kremlin continues to paint an optimistic picture, experts point out real problems and upcoming tax changes.
31 October 2024 12:18
The war in Ukraine, which has brought Russia a record number of sanctions and 600,000 casualties, instills fear among the Russian elites. Officials and businesspeople are weary of the conflict, but its conclusion also terrifies them.
It's unclear how we're supposed to proceed after the special military operation, says a source close to the president's administration.
Stagnation in Russian business
Uncertainty also affects Russian business, which has lost Western markets due to the sanctions. "Friendly" countries like China and Turkey partially adhere to the restrictions, making a return to normalcy difficult. - But now there’s nothing old left, nothing new emerging, and everything is starting to stagnate - adds a source speaking to Meduza.
Putin's large economic projects, promising a "sovereign" future, remain on paper. Factories are not producing aircraft, and shipyards are not launching tanker production due to a lack of technology. Import substitution programs are not yielding results.
Challenges for the economy
Research from the Russian Academy of Sciences shows that every second enterprise cannot find alternatives for imported equipment. The IMF forecasts that from 2025, Russia's GDP growth will fall to 1.3 per cent. The economy's reserves are "practically exhausted," says Central Bank chief Elvira Nabiullina.
The Kremlin plans tax reform to increase budget revenues. In 2025, taxes on profits and personal incomes will rise. The Ministry of Finance estimates that this will bring in CAD 50 billion next year. However, these funds may prove insufficient, the report notes.
Experts warn that the end of the war could be just as painful for the economy as the conflict itself. Defence spending accounts for six percent of GDP, and halting it raises questions about the future of factories and workers. - Continuous aggression is necessary to keep the economy moving, emphasizes researcher Elina Rybakova.
