Russia Faces economic Crisis, Weighs VAT Hike too Fund War Effort
MOSCOW – Russia’s economy is slowing faster than anticipated, prompting alarm from top financial figures and raising concerns about a prolonged recession, according to recent reports.As military spending surges to Cold War levels, the Russian government is considering a notable increase in Value Added Tax (VAT) as it struggles to finance the ongoing war in Ukraine and address a ballooning budget deficit.
Germán Gref, CEO of Sberbank and one of Russia’s moast influential bankers, sounded the alarm in early September, stating the economy is slowing “faster than expected.” This downturn is compounded by factors including high credit costs, a shrinking workforce due to mobilization and emigration, rising unemployment, and a declining birth rate.
Recent data reveals a troubling trend: for the first time, business closures are exceeding new openings, as reported by Russian media outlet Izvestia in early August. Simultaneously, mortality statistics have become so concerning that the government has restricted public access to demographic data through Rosstat, the Federal Statistics Agency.
Public spending has exploded by more than 75% since the February 2022 invasion of Ukraine, according to AFP. This has led to a dramatic increase in the country’s deficit, reaching approximately 43 billion euros in the first eight months of the year – three times higher than the same period in 2023. Experts warn that continued spending at this rate risks exhausting Moscow’s ability to stimulate the economy.
A potential solution under consideration is a VAT increase, scheduled for a vote in the Duma on September 29.However, economists caution that such a move could trigger a new wave of inflation.
