'Everything for the front': Russia allots a third of 2024 spending to defence

FILE PHOTO: Russian President Vladimir Putin chairs a meeting on economic issues, outside Moscow

By Darya Korsunskaya and Alexander Marrow

(Reuters) - Defence spending will account for almost one third of Russia's total budget expenditure in 2024, the government's draft plans show, as Moscow diverts ever more resources towards prosecuting its war in Ukraine.

Russia also plans to ramp up state borrowing to help fund what it calls a "special military operation" in Ukraine in the coming years and is counting on a recovery in oil and gas revenues to pre-invasion levels to do so.

Spending under the "national defence" section of Russia's budget will total 10.78 trillion roubles ($109 billion) next year, or 29.4% of total planned expenditure of 36.66 trillion roubles, according to the finance ministry's budget documents that outline the government's fiscal plans for 2024-2026.

In 2021, the year before Moscow launched its invasion of Ukraine, defence spending totalled 3.57 trillion roubles, 14.4% of total spending. In 2022, the share of defence spending rose to 17.7%, data on Russia's electronic budget page showed earlier this year.

Spending figures for 2022 were subsequently removed from the online budget portal. The most up-to-date data for 2023 was published as part of the finance ministry's 2024-26 budget plans.

The finance ministry has allocated 6.41 trillion roubles to defence in 2023, or 21.2% of total budget expenditure of 30.27 trillion roubles, but Finance Minister Anton Siluanov last week said total spending would be above plan at around 33.5 trillion roubles.

That may mean that defence spending will also be significantly higher than first envisaged.

Moscow doubled its target for defence spending in 2023 to 9.7 trillion roubles, Reuters reported exclusively in August, citing a government document.

"The budget's structure shows that the main emphasis is on ensuring our victory - the army, defence capability, armed forces, fighters - everything needed for the front, everything needed for victory is in the budget," Siluanov said last week.

"This is a big strain for the budget, not a small one, but it is our absolute priority."

EDUCATION, HEALTHCARE FREEZE

As defence spending in 2024 triples from pre-invasion levels, the share of spending on "national security", which covers funding for law enforcement agencies, is also rising, set to reach 9.2% in 2024, the documents showed.

To compensate for those increases, Moscow will effectively freeze spending on education and healthcare. The share of spending on "national economy", encompassing roads, infrastructure and construction, will decrease to 10.6% in 2024, the lowest share since 2011.

"Social policy", traditionally the leading spending area on state salaries, pensions and benefits, will account for less spending than defence at 7.73 trillion roubles in 2024, and with its lowest share of spending since 2011 of 21.4%.

Spending on those areas will nominally rise, but below inflation, meaning real-term cuts.

Chief Economist, Russia and CIS, at Renaissance Capital Sofya Donets said that taking defence and national security spending to almost 40% of all Russia's expenditure pending may have a strong short-term impact, but will contribute little to growth in the long-term due to their minimal impact on tax revenues.

Kremlin spokesman Dmitry Peskov last week said increasing defence spending was "absolutely necessary" for the budget because Russia is living "in a state of hybrid war".

Russia argues that the West is fighting a hybrid war against it to sow discord and ultimately carve up its vast natural resources, allegations that Western leaders deny, saying Moscow's decision to invade Ukraine was unprovoked.

Ukraine vows to eject every last Russian soldier from its territory, and casts the invasion as an imperial-style land grab by Russia.

($1 = 98.8830 roubles)

(Reporting by Darya Korsunskaya; Writing by Alexander Marrow; Editing by Philippa Fletcher)