Putin makes it official: Russia is all in on defense spending

Russian President Vladimir Putin approved a record defense budget for 2025.

Russian President Vladimir Putin has signed off a federal budget that will boost defense spending to a record level next year.

The budget for 2025 will take the amount allocated for national defense to 13.5 trillion rubles, or $126.8 billion — up from 10.8 trillion rubles in 2024.

This means defense will make up 32.5% of Russia’s federal budget next year, up from 28.3% this year.

The budget was proposed in September and approved by Russian lawmakers over the last 10 days.

Russia’s record budget for its war in Ukraine comes as the conflict heads into its fourth year next February.

Even though Western countries have unleashed a raft of sanctions against Russia over its invasion of Ukraine, Putin’s regime is keeping Russia’s economy afloat, with most activities driven by military activities.

However, Russia’s economy is under pressure, with wartime activities driving the economy so hot that inflation has spiked. That prompted Russia’s central bank to start hiking its key interest rate, now at a record high of 21%.

Last month, Russia’s top central banker said the economy was at a “turning point,” and that as inflation slows, she expects to cut the key interest rate.

Meanwhile, the ruble has sunk to 32-month lows, signaling that all is not well in the Russian economy. Putin has told his countrymen not to panic about the decline in the ruble.

Analysts at the Institute for the Study of War said on Sunday that the boost in Russia’s defense spending doesn’t necessarily mean that the country’s military capabilities will increase because a significant amount of the budget will go toward benefits for soldiers, veterans, and their families.

“Russia’s continued focus on defense spending is likely also affecting the effectiveness and sustainability of Russian social programs, which may affect the Kremlin’s ability to sustain its war in Ukraine, given mounting pressures on the Russian economy and Putin’s observed tendency to avoid risking his regime’s stability,” wrote the analysts in a note.

‘An absolutely unusual situation’

A top Russian banker told Reuters late last week that the long-drawn war and the economic situation mean that Russia’s economy is expected to slow next year.

“It is impossible for the economy to go through such events without consequences,” Andrei Kostin, the CEO of VTB — Russia’s second-largest bank by assets — told the news agency.

Despite this, Russia’s economy is “healthy,” he added.

Kostin said he expects Russia’s GDP growth to slow to 1.9% in 2025 — still above the International Monetary Fund’s forecast of 1.3%. The IMF expects Russia’s economy to grow 3.6% in 2024.

Russia’s economy ministry forecasts that the country’s economy will grow by 3.9% this year and 2.5% next year.

“The war has been going on for almost three years, and a huge number of sanctions have been imposed. We are living in an absolutely unusual situation,” Kostin told Reuters.