Russian MPs have given their initial approval for a substantial increase in military spending to finance the ongoing invasion of Ukraine. The proposed bill, which passed its first reading, would allocate a staggering 10.8 trillion ruble to defence in 2024, a dramatic increase of 68 per cent.
If the budget proposal is ultimately adopted, military expenditures would represent nearly a third of Russia’s overall spending in 2024, marking a considerable shift in national budget priorities. This would bring military spending to more than six per cent of the country’s gross domestic product (GDP), the highest share of the economy allocated to the military since the dissolution of the Soviet Union.
The move came as Russia’s Central Bank on Friday raised its key lending rate for the fourth time in half a year in an effort to bring down surging inflation.
The bank raised the rate to 15 per cent, up 200 basis points. The interest rate in the first half of the year was 7.5 per cent. It said seasonally adjusted price growth in the third quarter exceeded an annualised 12 per cent and inflation for the year is expected to be about 7 per cent. The bank said it expected inflation to fall to about 4 percent in 2024.
Raising interest rates is intended to impede inflation by increasing the cost of borrowing and encouraging savings.
“Steadily rising domestic demand is increasingly exceeding the capabilities to expand the production of goods and the provision of services. Inflation expectations remain elevated. Lending growth paces are invariably high,” the bank said.
Sanctions imposed over Russia’s war on Ukraine and increased defence spending have taken a toll on the Russian economy, notably on the ruble’s exchange value, which has dropped about 25 per cent against the US dollar this year.
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