Russia Struggles to Manage Defense and Security Budgets

At the end of September 2023, a draft of the Russian federal budget for 2024 and the 2025–26 planning period was introduced to the State Duma. Fiscal revenues for 2024 are planned to be 35.07 trillion rubles ($418.5 billion, according to the average exchange rate for 2023), and total spending is set at 36.66 trillion rubles ($437.6 billion). The national defense budget will continue the unprecedented growth it saw in 2022–23, reaching a peak level of 10.78 trillion rubles ($128.7 billion) in 2024 (Duma.gov.ru, September 29; Sozd.duma.gov.ru, accessed October 5). The Kremlin seems intent on continuing its fighting against Ukraine for the foreseeable future, but it is plagued with growing budgetary and monetary problems that may derail the war effort.

In contrast to the defense budget, the national security and law enforcement budget for 2024 will remain relatively stable at 3.4 trillion rubles ($40.6 billion). This includes spending for the Russian National Guard (Rosgvardia), Federal Security Service (FSB), and Foreign Intelligence Service (SVR), as well as local and regional law enforcement agencies. The current figures may be revised, as they traditionally have been in previous years, from October to December 2023 when the draft budget will be discussed in the Duma (Duma.gov.ru, September 29; Sozd.duma.gov.ru, accessed October 5).

A large portion of the increased military spending will cover the costs of Russia’s ongoing war against Ukraine. These funds will be allocated to stymie the sky-rocketing cost-plus inflation within the Russian military-industrial complex, address the devaluation of the ruble, and pay the families of the hundreds of thousands of killed and wounded military personnel (Sozd.duma.gov.ru, accessed October 5).

Russia’s budgetary planning has been in turbulence since 2022. Military and national security planning represents perhaps the most complicated parts of this process. The table below displays the national defense budgets and future estimates since 2021 (Minfin.gov.ru, December 8, 2021; Minfin.gov.ru, November 2022; Minfin.gov.ru, December 31, 2022; Sozd.duma.gov.ru, accessed October 5):

Actual spending on national defense ended up being significantly higher than the original plan for 2022 and 2023 at 5.5 trillion rubles ($80.3 billion) and 6.4 trillion rubles ($76.4 billion), respectively (Minfin.gov.ru, December 31, 2022; Sozd.duma.gov.ru, accessed October 5). Spending for 2023 will likely grow between now and the end of the year. The ongoing devaluation of the ruble means Russian defense spending actually seems lower than it truly is when expressed in US dollars, pointing to higher spending than these figures indicate. It is unclear whether Russian officials either did not count on a long and intensive war or believed that this year’s budget would incur the highest increase in military spending.

The national security and law enforcement budget demonstrates more stable dynamics, with the government going great lengths to prevent any increase in spending. The table below gives an accounting for this budget since 2021 (Minfin.gov.ru, December 8, 2021; Minfin.gov.ru, November 2022; Minfin.gov.ru, December 31, 2022; Sozd.duma.gov.ru, accessed October 5):

Actual spending on national security and law enforcement has been slightly lower than what was originally planned for 2022 and 2023 at 2.8 trillion rubles ($39 billion) and 3.2 trillion rubles ($44.2 billion), respectively. These slight drops in spending may be explained by the presence of Rosgvardia units, FSB agents, and police officers in the occupied territories of Ukraine, which means their participation in combat activities are limited. Additionally, many of the security services and law enforcement agencies are understaffed at the moment, giving Moscow more room for financial maneuver.

The expanding gap between the defense and national security budgets is largely based on three factors. First, this difference comes as a result of sky-rocketing inflation in Russia’s military-industrial complex. As Russian forces maintain a high rate of fire in Ukraine, the Kremlin has been forced to use a significant amount of additional spending for arms procurements (see EDM, August 7).

Second, the growing amount of rubles in circulation inevitably means high rates of inflation for 2024. In September 2023, the money supply in Russia surpassed 90 trillion rubles in September 2023 compared to 82.4 trillion in January 2023, 66.3 trillion rubles in January 2022, and 58.65 trillion rubles in January 2021. Consequently, further devaluation of the ruble against other reserve currencies is unavoidable, making solving the problem an increasingly challenging task for Moscow (Cbr.ru, accessed October 5).

Third, the Kremlin has promised to pay compensation to the families of those killed and wounded in Ukraine. The Russian government has promised 8.1 million rubles (about $97,000) to the families of the deceased and 3 million rubles (about $36,000) to the families of the wounded. In September 2023, the Russian Ministry of Labor and Social Protection ordered 230,000 blank forms for family members of dead and wounded veterans, as well as 757,305 forms for veteran identification cards. This included 600,000 for the Ministry of Defense; 86,805 for the Ministry of Labor and Social Protection itself (presumably for the FSB and private military companies); 60,000 for the Ministry of Internal Affairs; 10,000 for Rosgvardia; and 500 for the Ministry of Construction (Verstka.media, September 18). Conservative figures for compensation to these families comes to trillions of rubles. Given the hamstrung budget, some of the payments for 2023 will likely be paid in 2024.

It is clear that Russia does not intend to stop the war anytime soon. That means defense spending will continue to increase, at the expense of other parts of the Russian central budget. Difficulties with the budget moving forward could put a strain on Russian military officials in conducting the “long war.” The West can capitalize on this dysfunction by remaining resolute in sending not only adequate military aid but also financial assistance to Ukraine.