Anticipated to secure another term in the upcoming March 15-17 election, President Vladimir Putin, who has held a dominant position in Russia for 24 years, has pledged over 11.5 trillion roubles ($126.5 billion) for infrastructure and social expenditures over the next six years. Nonetheless, challenges may arise as Moscow’s economic growth is heavily reliant on substantial military spending and export revenues, both susceptible to the impact of Western sanctions.
While the Kremlin has cut taxes and raised incomes, the country is still grappling with the fallout from Western economic sanctions imposed following Russia’s full-scale invasion of Ukraine. That has made it harder for the government to fund the war, which is now entering its third year and costing more than six percent of GDP this year.
The Kremlin’s 2024 budget projects that revenue will jump by a third to 36.6 trillion roubles while spending will rise by more than twofold to 6.7 trillion roubles. According to estimates by the State Duma, that should reduce the budget deficit to 0.8 percent of GDP next year. However, military spending accounts for the bulk of the budget, with domestic social spending projected to stagnate at around 7.5 trillion roubles.
Russia’s budget for next year includes a tax break on natural resource exports, which could generate as much as 4 trillion roubles in extra revenue. The tax exemption is a rare exception to the overall skewed structure of Russian taxation that favors large companies and is aimed at boosting liquefied natural gas (LNG) exports.
But that could be only a tiny piece of the picture, as foreign investment flows to Russia are likely to decline. This reflects growing opposition in the West to the war in Ukraine and a shaky outlook for the global economy.
And while the Kremlin is unlikely to lose the election, it needs to be clarified that it will be an actual contest, with none of the candidates viewed as genuinely opposed to Putin’s rule. The ruling United Russia party has no serious contenders. In contrast, independents and candidates from non-parliamentary parties face the daunting task of collecting millions of signatures to qualify for the ballot. Even so, the OSCE, concluding that last year’s vote lacked genuine competition, won’t send observers to monitor this year’s election.
Putin, who’ll be 83 at the start of his next term, has repeatedly pledged not to change the constitution to allow him to run for a fourth presidential term, which would take him through 2036. But in 2020, he overhauled the law to reset term limits, allowing him to stay in office until at least 2024. With the conflict in Ukraine at a stalemate and Moscow’s relations with the West at a post-Cold War low, the next six years will be critical for Russia. The country will need to find new sources of wealth in the face of a shrinking global market. The big question is whether it will do so before Russia’s economy collapses.
