Russia in Economic Tailspin: Nearly Two Years of Putin's War in Ukraine Taking Toll on Country's Economy

After almost two years since the invasion of Ukraine, the Russian government has lost many things, including national reserves.

The National Wealth Fund of Russia has experienced a significant decline, losing 44% of its assets over the past two years, according to a recent report from the Finance Ministry.

As of Dec. 31, 2023, the fund had 5 trillion rubles (approximately $55.7 billion) that could be easily liquidated, compared to nearly $99 billion at the beginning of 2022, Bloomberg reported.

However, there is a discrepancy in the reported figures, with the Russian Finance Ministry website showing a more optimistic $151.1 billion in the fund as of Dec. 1.

The Finance Ministry emphasizes that the Wealth Fund is just one component of Russia's national budget, with “separate accounting and management” to balance the overall budget and support the “budget of the Pension Fund.”

Approximately $33 billion was withdrawn from the Wealth Fund in the previous year to cover the budget deficit, and there are plans for a substantial increase in defense spending.

Weak global oil prices further contribute to Russia's financial challenges, as the price of Urals crude oil exports dropped by 17% last year to an average of $62.99 per barrel.

Bloomberg Economics analyst Alex Isakov suggests that while the Wealth Fund is secure for the next year or two, events in the Middle East and Persian Gulf, particularly related to oil supply disruptions, could pose risks to Russia's economy.

Despite international sanctions, one positive aspect is the increase in the Wealth Fund's holdings in Russian companies and infrastructure bonds since the beginning of 2022.

On the other hand, Ukraine faces its own budgetary difficulties after 23 months of warfare. Rostyslav Shurma, a government official, revealed at the World Economic Forum that Ukraine's deficit is around $40 billion.

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Shurma expresses confidence that international partners, including the United States and the European Union, will approve assistance packages to cover the deficit. However, U.S. government aid to Ukraine has halted, with Republicans in Congress prioritizing border security.

Shurma estimates that Ukraine will need an additional $10 billion to operate, potentially sourced from Russian assets frozen by sanctions, with the U.S. share amounting to $300 billion, as reported by The New Voice of Ukraine.