Having Spent Almost 80 Billion US Dollars on War in Ukraine This Year, Moscow will Likely have to Spend Even More in 2023, Inozemtsev Says

 Paul Goble

            Staunton, Dec. 20 – The most important factor affecting the Russian economy in the coming year will be the war in Ukraine, with Moscow likely to have to increase spending from 78 billion US dollars this year to round 110 billion next, to pay for more troops, new weapons, and the integration of occupied territories, Vladislav Inozemtsev says.

            At the same time, however, the Russian economist says, sanctions will be felt in full for the first time “only in 2023,” although neither the direct cost of Moscow’s military effort nor the enhanced sanctions will lead to quantitative decline but only to the qualitative decay of the Russian economy given Moscow’s reserves (ridl.io/ru/god-velikogo-nevozvrata/).

            The Russian GDP is likely to fall by 4-4.5 percent, but inflation will fall as well, to six to seven percent, Inozemtsev says. More serious will be the problems connected with the departure of so many workers abroad. The exodus will continue as more individuals and the families of those who have already left depart.

            Capital flight will continue as well, possibly accelerating still further. It stood at 250 billion US dollars this year; and almost certainly it will reach a new record next. Moscow will have to impose restrictions both on capital flight and on the departure of citizens, despite its denials on these points.

            But perhaps the most important development in 2023 will be a recognition by the authorities that they can’t continue to make the geopolitical assumptions they did when they launched the war. They expected it to be quick and so to avoid sanctions. But it hasn’t been and they haven’t. And sanctions are for the long term now.

            Had Russia shown any interest in ending the war, the West might have been prepared for some compromises; but it didn’t and now the West isn’t. As a result, Inozemtsev says, “2023 will turn out to be ‘a time of no return,” one in which the full consequences of the war will be felt in Russia itself.

            “It should be emphasized,” the economist says, “that 2023 will be a landmark year but not a catastrophic one for the Russian economy. Having taken the first step into the abyss in 2022, the Kremlin will be cut off from all chances for normalization in the coming year; and the country will finally turn into a pariah” with the West ending purchases of Russian raw materials.

            Neither next year nor the following one will there be any major economic crisis in Russia, however, Inozemtsev concludes. “There are sources to cover the budget deficit and there aren’t any prerequisites for an explosive growth in inflation.” Given that the incomes of most Russians depends on the state, they won’t see a radical decline in their incomes.

            Rather what they will see will be an increasingly obvious decline in the quality of life “as the society and the economy become more primitive.”