Russia finds itself in an uncertain economic situation as former Russian central bank official Alexandra Prokopenko said the war in Ukraine is taking much of the nation's financial resources.

According to Business Insider, Prokopenko wrote in Foreign Affairs on Monday that Russia was spending so much on its war in Ukraine that it was already draining resources from the rest of the economy.

Prokopenko cited the significant transformation in Russian industry, "with defense sectors now overshadowing civilian industries." According to Prokopenko, Russia's current military spending has overshadowed social expenditures for the first time since the Soviet Union's fall.

Russia Focuses on Military Spending

Citing Russia's federal budget, Business Insider reported that Moscow had allotted nearly one-third of its 2024 budget to defense spending and about one-fifth to social spending, including salaries, benefits, and pensions.

Prokopenko, now a researcher at the Center of Eastern European and International Studies, said this shift toward a militarized economy "threatens social and developmental needs."

The consequences extend beyond financial aspects, as the military sector also draws off labor from the civilian workforce. Prokopenko said this has led to an "abnormally low" unemployment rate of 2.9%, a notable decline from the 4-5% range before the war.

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Russia's President Vladimir Putin Is Trying to Solve a 'Trilemma'

Russia's labor market is experiencing challenges exacerbated by the war and a massive brain drain. The nation's economic dynamics are further complicated by Russian President Vladimir Putin, who is attempting to solve what Prokopenko calls a "trilemma" in navigating the country's economy. 

Prokopenko noted that Putin is currently facing threefold challenges - funding his ongoing war against Ukraine, maintaining his populace's living standards, and safeguarding macroeconomic stability.

However, Prokopenko noted that achieving the first and second goals will need higher spending, which will fuel inflation that "prevent the achievement of the third goal."

As defense spending in 2024 triples from pre-invasion levels, Reuters reported that the share of the expenditure on "national security," which covers funding for law enforcement agencies, is also rising.

Russia effectively stops spending on education and healthcare to compensate for those increases. On the other hand, the share of the expenditure on the "national economy," encompassing infrastructure, roads, and construction, will reportedly be lowered this year.

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