Russia can’t stave off an economic crisis forever, think tank researcher Alexander Kolyandr writes.
Moscow is becoming more susceptible to major shocks the longer the war goes on.
“The Kremlin, as a result, is in a three-way bind of its own making,” Kolyandr said.

Russia’s economy is fragile and policymakers won’t be able to stave off a crisis for very long, a think tank researcher argued in a post on Tuesday. 

Alexander Kolyandr, a Russian economy expert and researcher for the Centre for European Policy Analysis, pointed to mounting challenges faced by the Kremlin as its war in Ukraine drags on through its third year. 

Central bankers and policymakers in Russia have so far managed to keep the economy afloat, but their good luck is bound to run out, Kolyandr warned.

“Putin used to know that the economy was best left to professionals. Indeed, the men and women running the country’s central bank, finance ministry, and ministry of economic development remain highly skilled and saved the country from economic collapse in 2022,” Kolyandr wrote in a recent note. “Two years on, they clearly understand the longer-term impossibility of the task they’ve been set. The question is, do they dare tell the boss? And if they do, will he listen?”

Russia’s economy has flashed key signs of weaknesses since the West first began imposing sanctions on the nation in 2022. Trade restrictions, like a ban on energy imports to Europe and $60-per-barrel price cap on Russian oil, have delivered a major blow to the Kremlin’s war chest, with Russia’s energy revenue plunging 24% last year. 

Russia is also reeling from the growing costs of its war, in both its finances and its human capital. The nation is now slammed with a severe worker shortage, which has pushed up wages and inflation.

Prices in Russia are growing at a pace of around 8%, double the central bank’s official price target. Interest rates have also soared to 16% as policymakers try to stem the inflationary tide, which poses another burden to consumers. 

“The Kremlin, as a result, is in a three-way bind of its own making. The government can’t cut spending as long as the war continues. The war, however, saps the labor force, fueling inflation and diminishing both welfare and public sentiment. And high interest rates, necessitated by all that inflation, stifle investment in productivity and further distort the economy,” Kolyandr said.

Other experts have noted that Russia faces a dilemma as it juggles managing its economy and prolonging its war against Ukraine. According to one European economist, the nation has become dependent on war for economic growth, and it can’t afford to win or lose the war.

Read the original article on Business Insider

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