Putin is facing a growing economic crisis (Image: Getty)
Russia’s economy increasingly resembles that of ‘s and is facing an “inevitable collapse”, a former head of ‘s National Bank told the Express.
‘s decision to launch a full-scale invasion of led to the imposition of swingeing sanctions, cutting the country off from Western financial and export markets.
At the same time, investors rushed to pull their money from the country, withdrawing approximately US$217 billion (£171bn) in 2022 and another US$60 billion (£47bn) in 2023.
The Kremlin responded by injecting billions of pounds into the economy, particularly the military-industrial complex, as it placed the country on a war footing.
Kyrylo Shevchenko is a former head of Ukraine’s National Bank (Image: Getty)
This injection of cash has helped ‘s GDP to grow for two consecutive years – by 3.6% in 2023 and 4.10% in 2024.
However, Kyrylo Shevchenko, who headed up ‘s National Bank between 2020 and 20222, said the figures are deceptive and hide deeper structural problems.
“In , GDP has been growing at a stable pace over the past two years of war, yet household incomes continue to decline,” he explained.
“This is a classic case of a highly regulated economy, where GDP growth is not driven by market factors but rather by the redistribution of state finances.”
Defence has been the main beneficiary of this redistribution, seeing its share of government spending rapidly increase.
Don’t miss… [NEWS]
This year, the Kremlin is projected to splurge another US$145 (£114bn) billion on the sector – around 40% of total government spending.
The enormous boost to defence spending has created over 500,000 new jobs and increased wage packets exponentially.
Welders and machinists working in defence industries are reported to be earning more money than many white-collar managers and lawyers.
However, Mr Shevchenko cautioned that the defence industry does not generate significant added value and “consequently will not bring long-term positive effects to the economy.”
He argued: “From the perspective of the Austrian School of Economics, as laid out by Friedrich Hayek, is currently in a classical scenario of economic distortion.
Russian shoppers have seen food prices explode (Image: Getty)
“The authorities are attempting to ensure economic growth manually, through direct state financing of specific sectors and regulation of financial markets. Such ‘artificial prosperity’, as described by Hayek, will inevitably lead to economic collapse.”
‘s former top banker noted that ‘s economy increasingly resembled that of North Korea’s, suffering from many of the same problems – strict government regulation, limited access to new technologies and modernisation opportunities, as well as a shortage of qualified personnel.
The only way out for is through the lifting of sanctions and the gradual return to global commodity and financial markets, he believes.
“Otherwise, faces a gradual economic decline and prolonged stagnation with all its consequences – economic, political, and social,” he said.