May 29, 2024
Economy

Russia’s Not Winning Ukraine War Due to Mismanaging Its Economy: Berkeley


Sputnik/Mikhail Klementyev/Kremlin

  • Russia’s self-inflicted economic problems mean it can’t be said that Moscow is winning its war. 
  • Two UC Berkley economists note that Russia’s problems are a result of its own mismanagement. 
  • Meanwhile, Ukraine’s prospects are dependent on further aid from the West. 

It’s hard to say that Russia is winning the war against Ukraine as Moscow’s actions have brought on a self-inflicted economic wound, two academics wrote in an op-ed for Project Syndicate on Wednesday

UC Berkeley professors Anatassia Fedyk and Yuriy Gorodnichenko wrote that the odds of Ukraine winning the war are brightening, especially if it continues to receive economic and military aid from the West.

While Kyiv’s economic outlook is improving, Moscow’s economy is “showing signs of strain,” they said. 

Russia’s currency has dropped in value against the dollar, while interest rates have skyrocketed to around 16% to boost the sagging currency and tackle roaring inflation in the country; prices rose by 7.4% year-per-year in February, nearly double the central bank’s 4% target.

The Kremlin also looks to be pulling in less money these days. Despite Putin’s show of defiance against Western sanctions, oil and gas revenues plummeted around 24% in 2023, amounting to nearly $100 billion of lost revenue, according to data from the Russian government.

Russia also faces a huge demographic problem as it loses men on the battlefield and grapples with the exodus of citizen who have fled the country since the war began two years ago. The nation was around 5 million workers short in 2023, per an estimate from the Russian news agency Izvestia.

That bodes poorly for business and productivity, economists have warned. Russia’s economy is now 5% smaller than estimates from before it invaded Ukraine in 2022, according to the US Treasury Department.

Ukraine’s economy, meanwhile, looks like it’s headed for better days. While GDP plunged around 30% in 2022, the International Monetary Fund raised its 2023 growth estimate for the nation from 2% to 4.5%.

Inflation, meanwhile, is expected to cool to just around 5% this year, down from the 26% it notched at the start of 2023.

“On Russia’s side, most of the economic losses are the result of its own mismanagement and Western sanctions,” Fedyk and Gorodnichenko said. “Russia, of course, brought all these problems on itself. It most certainly is not winning the war, either militarily or on the economic front. Ukraine is recovering from the initial shock, and if robust foreign assistance continues, it will have an upper hand in the war of attrition.”

Ukraine will likely need continued military support from the US and other European countries, as well as continued financial aid, Fedyk and Gorodnichenko said. The West should also continue to target Russia’s economy with sanctions if Ukraine is to stand a chance, they added.

“All these elements are not only feasible but urgently necessary to help Ukraine defend itself,” the professors said.



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