ISTANBUL – Russia’s war against Ukraine, which has now hit 500 days, has inflicted a huge economic effect on both and other countries due to fluctuating commodity prices.
During the 500 days, Russia increased military expenses and saw difficulties especially related to embargoes and trade bans from Western countries.
Russian Central Bank reserves, worth 300 billion euros (US$326.6 billion), was blocked since the beginning of the war by the EU, G7 countries and Australia.
In addition, 70 percent of the assets of the Russian banking system and around 20 billion euros of assets of more than 1,500 people and entities are under Western sanctions, according to a European Council’s recent report in May.
Although increasing energy prices were positive for Russia in the first half of 2022, sanctions targeting oil imports have resulted in limiting Russia’s revenues, the Council report said.
Russia’s oil revenues fell by more than one quarter in January 2023 on a yearly basis, and the decline in February was actually more — over 40%, International Energy Agency’s data showed.
Data from international institutions, such as the World Bank, the Organization of Economic Co-operation and Development and the IMF, indicate that the Russian economy has shrunk by 2.1% in 2022 and the contraction may continue in 2023.
For 2023, imports are forecasted to increase while exports to the world are expected to see a decline. Exports totaled US$588.3 billion in 2022, while it is expected to drop to US$465.9 billion in 2023, US$484 billion in 2024 and US$496.2 billion in 2025.
Imports were at US$280.4 billion last year, and are forecasted to increase to US$313.8 billion in 2023, US$332.8 billion next year and US$347.4 billion in 2025.
After Russia started its “special military operation” against its neighbor on February 24, 2022, many sectors and countries announced sanctions or suspensions, trying to exert pressure on the Russian economy.
Some companies stopped operations and deliveries in Russia, while others ended investments or withdrew partnerships in Russia, and Belarus. Industrial production shrunk 0.6% in 2022, while retail trade turnover declined by 6.7%t on a yearly basis.
In terms of military expenses, the Stockholm International Peace Research Institute (SIPRI) said data in June show that Russia’s defense budget’s share in the total government budget was up 23% from 21% in 2022 and 20% in 2021. The national defense budget’s share in GDP also increased to 4.4% in 2023 from 3.6% in 2021.
Russia’s national defense budget for 2023 was announced as 4.98 trillion rubles (US$54.7 billion).
Besides military spending, Russia had to assume other major expenses such as rebuilding investments in “new territories,” according to the SIPRI report. Russia had occupied the Donetsk and Luhansk regions and parts of Kherson and Zaporizhzhia oblasts in September 2022.
It has announced a plan to spend 1.88 trillion rubles from 2024-2026 on state organs for the newly annexed regions. From infrastructure to health and educational mechanism, Russia will have to spend billions of rubles for the regions in the coming years.
On the Ukraine side, the country’s economy has shrank 29.1% in 2022, on a yearly basis, after an increase of 3.4% in 2021. Poverty increased too from 5.5% to 24.2% in 2022, pushing 7.1 million more people into poverty.
Ukraine saw difficulties in its economy due to the war, which hit several sectors including tourism, production, agriculture, energy and transportation.
Damage to essential health, education and social protection services amounted to US$83 billion and reconstruction and recovery needs in those three sectors were estimated at almost US$69 billion, according to World Bank figures.
The World Bank previously estimated that the country needs more than US$400 billion for overall recovery and reconstruction.
The Center for Disaster Philanthropy said that this year, around 40% of Ukraine’s population, or 17.6 million people, require humanitarian assistance, 45% of whom are women and 23% are children. The UN estimates more than 4 million Ukrainian refugees may need protection and assistance in neighboring countries in the coming months.
From February 25 to the end of May, all recorded commitments to Ukraine amounted to 165 billion euros, including military, financial and humanitarian aid, Kiel Institute stressed previously.
Ukraine’s military spending was up 7.4 times to US$44 billion in 2022, which was 34% of the country’s GDP, according to SIPRI. (Anadolu)