May 30, 2024
Economy

How the Russian economy allowed Putin to silence Navalny forever


A looming problem for Russia is how cash feeding the war machine is diverting resources away from innovation and improving productivity.

Such issues – high inflation, unfavourable demographics and a lack of investment – will constrain future growth.

A Russian economist who spoke on the condition of anonymity also highlighted that a growing deficit and a fall in oil prices could quickly become a problem for the Kremlin, which has limited borrowing options.

“It may seem that the Russian government can keep financing the war and its social liabilities – from social support to household income – for a long time, but this can be misleading,” they said.

Could Putin simply run out of cash? “Yes, it is possible but that doesn’t mean [the war] will stop,” they said.

“It’s like an anecdote that is popular in Russia: there is a dysfunctional family and the father, the main breadwinner of the family, is an alcoholic. He comes home one day and says vodka is getting more expensive. The kids optimistically ask ‘does that mean you will drink less?’ and he responds ‘no, it means you are going to eat less’.”

Yet such an inflection point could be years away. For weary Ukrainians who feel that attention and support are fading, there is plenty to worry about.

The strength of the Russian economy will only embolden Putin further, warns Connolly.

“There is a lot of rhetoric directed towards Russia criticising them for what they have done, but in the end we did very little,” he adds. “That gave them further encouragement to think well, hang on a minute, the costs associated with war are actually pretty modest. I suspect that is probably what they are still thinking in the Kremlin today.”

Some names have been changed to protect identities.



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