RUSSIA'S ECONOMY IS BOOMING, SO WHY IS IT IN TROUBLE?

Putin's 25 years at the helm have been little different to the Soviet era. H has again made Russia a military giant but an economic dwarf.

Sanctions! What sanctions? You could almost hear the sneer coming from the Kremlin last Sunday as President Vladimir Putin signed off Russia's new budget, which had been approved a few days earlier by lawmakers in both the State Duma and the Federation Council. Russia's economy is booming and of the total budget of 42 trillion roubles ($397 billion), a gargantuan third has been allocated for national defence, up from 28% this year. The figure represents 6.5% of Russia's GDP, the highest in the country's post-Soviet history and a huge increase since 2021 when it was a modest 2.7%.

By contrast India, the fastest growing major economy in the world, is currently spending about 2.5% on defence and the US 3.5.

Almost three years into his full-scale invasion of Ukraine Vladimir Putin, who decades ago lamented the collapse of the Soviet Union, is changing Russia's economy to what is essentially a Soviet one, modified in part by market elements. The distinguished Russian commentator, Andrei Kolesnikov, TARIFF CONUNDRUM describes Putin's new economic model as "one shaped not only by the imperatives of his war in Ukraine, but also by decades of Soviet nostrums and delusional thinking." The new model, he says, "combines state intervention, a dominant emphasis on the military-industrial complex, with a market economy in different areas, including parallel imports of various Western products to satisfy consumer demand." On the surface, the Kremlin can point to a degree of recent economic success.

Russia's debt-to-GDP ratio is less than 13%, while many European countries are creaking under the weight of their debt. The US, UK and France, for example, are recording debts of more than 100% of their GDP, while India's is hovering around 82%.

Inflation adjusted wages in Russia have increased dramatically in the past year by more than 9%, which means that most Russians are able to buy more and feel significantly better off.