Russian economy: “ fiscal crunch ” is about to hit the Putin war machine

But as Putin is ready to meet President Donald Trump in Alaska Friday to discuss the end of the war, there are more signs of tension in the Russian economy and the budgetary situation.

In June, the Minister of the Economy Maxim Reshetnikov warned that Russia was “on the edge” of a recession. And last month, the central bank reduced interest rates by 200 basic points to revive growth.

Meanwhile, government finances have also undergone increasing pressure. Kremlin oil and gas income, which is its main source of funds, plummeted 27% in July a year ago at 787.3 billion rubles, or about $ 9.8 billion.

The prices of crude oil have dropped, while Europe continued to add sanctions to Moscow and repress the “shadow fleet” of the oil tankers offering Russian crude supplies.

Even if income is weakening, expenses continue to skyrocket in the middle of Russia’s implacable attacks against Ukraine. In addition to expenses for weapons, the incentives to mobilize more volunteers for the army as well as the compensation of the families of dead soldiers remain in heaven.

The result was expanded the deficits, with the gap of the first seven months of the year, reaching 61.44 billion dollars, or 2.2% of GDP, against 1.7% in the first six months of the year.

Expenses from January to July increased by 20.8% compared to the same period a year ago, while income increased by 2.8% during this period.

The economist and author Anders Åslund, who wrote Russia’s cronyism capitalism: the path of the market economy to the Kleptocracysaid the situation is disastrous enough for Russia to be lacking in financial reserves, forcing discounts for public spending.

In a Project union An editorial on Thursday, he pointed out that Moscow has few sources of funding, because the sanctions have largely excluded Russia from the global financial system – and even the banks of Ally China hesitate to lend money.

Russia therefore had to operate the reserves in its national wealth fund, which increased from $ 135 billion in January 2022 to only $ 35 billion last May, according to Åslund, which predicted that the fund should run out in the second half of this year.

“The economy of Russia quickly approaches a tax crisis that will bother its war effort,” he added. “Although it may not be enough to force Putin to seek peace, it suggests that the walls are getting closer to him.”

For the moment, Moscow has avoided higher the United States while Trump fell from this threat to impose secondary sanctions that would hit Russian oil buyers, rather choosing to try to revive the cease-fire talks in Alaska.

A previous series of negotiations in April to stop fighting included a proposal from Trump’s envoy to raise American economic sanctions against Russia, require neutrality for Ukraine and recognize that the territory that Russia has seized. Ukrainian and European officials rejected these conditions and the talks failed to produce an agreement.

Trump predicted that land should change hands on Friday to reach an agreement this time.

“You are looking at a territory that has been taking place for 3 and a half years with-you know, many Russians have died, many Ukrainians have died,” he said. “There will be an exchange of territories towards the improvement of the two.”