Russian economy ‘in for very hard times’ despite better outlook: IMF

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Kristalina Georgieva, managing director of the International Monetary Fund, at a press conference at IMF Headquarters on April 14, 2023.

Kevin Dietsch | Getty Images News | Getty Images

The head of the International Monetary Fund warned that the Russian economy is still suffering from major headwinds despite a recent boost to growth by the Washington-based institution.

Russia’s economy has been surprisingly resilient amid waves of Western sanctions in the nearly two years since it launched its full-scale invasion of Ukraine.

At the end of January, the International Monetary Fund doubled its forecast for the pace of the country’s economic growth this year, raising it from 1.1% in October to 2.6%.

Nevertheless, the Managing Director of the IMF Kristalina Georgieva sees more trouble ahead for the country of around 145 million.

Speaking to CNBC’s Dan Murphy at the World Government Summit in Dubai, Georgieva described what she believed was driving Russia’s growth and why the projected figure doesn’t tell the story. whole

“What it tells us is that this is a war economy in which the state – which we remember, had a huge buffer, built up over many years of fiscal discipline – is investing in the economy this war. If you look at Russia, today, output is going up, [for the] weapons, [and] consumption is decreasing. And that’s pretty much what the Soviet Union was like. High rate of production, low rate of consumption.”

Russia’s defense spending has increased dramatically since the start of the war. Last November, Russian President Vladimir Putin approved a state budget that increased military spending to about 30% of fiscal spending, amounting to an increase of nearly 70% from 2023 to 2024.

Defense and security spending is expected to make up about 40% of Russia’s total budget spending this year, according to a Reuters analysis.

Watch the full CNBC interview with IMF Managing Director Kristalina Georgieva

Meanwhile, however, more than 800,000 people have left Russia, according to estimates compiled by refugee academics last October. Many of those who fled are skilled workers in fields such as IT and the sciences.

“I really think that the Russian economy is in for some very difficult times because of the outflow of people, and because of the limited access to technology that comes with the sanctions, Georgieva said.

“So while this number looks good, there’s a bigger story behind that, and it’s not a very good story.”

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