Putin has a secret weapon against the West. And he’s not military

The slow and gradual successes on the Ukrainian battlefield by the Russian army, increasingly evident in recent weeks, confirmed by the cries of alarm towards the West by the leaders of Kiev, find explanation in the remarkable, not to say enormous, spending capacity of the Russian state. This ability derives both from the considerable resources collected by the treasury managed by Putin, and from a traditionally modest approach to Russian public spending (for example, pensioners in Russia earn an average of 200 euros a month, even though it is the cost of living for many aspects superior to ours), but above all by the vast wealth of natural resources. To confirm the economic strength of the country led by Vladimir I, it is sufficient to analyze the following table 1, which reports the data on the public budget of the Russian Federation, found through a complex and long navigation on the website of the Ministry of Economy and Finance of Moscow (in the Russian version).

It is worth specifying that the revenues, in addition to the overall data (3rd column from the left), are divided into 2 categories, i.e. “non-tax” (4th column), which derive from the sale of raw materials and other proceeds, and “tax” (5th column), which are represented by the revenue generated by taxes. Finally, in the last column (the 6th) the budget deficit is reported (identified by the minus sign before the number), which however can also be a budget surplus (in this case there is a plus sign).

Table 1

The public budget of the Russian Federation 2020-2024

(data in billions of rubles)

Before commenting on the data, it is worth pointing out that at the beginning of 2020, 1 euro was worth 70 rubles, an exchange rate that had reached 85 rubles at the beginning of 2022, to then reach the current 100 rubles, not without sudden movements up and down . Using the current exchange rate, and taking into consideration the data for 2023, it can be stated that in that year the Russian state grossed around 290 billion euros, and spent just over 320 billion euros. It should also be considered that the inflation rates in Russia were 4.9% in 2020, 8.4% in 2021, 11.9% in 2022, and 7.4% in 2023, a circumstance which partly explains the increase in values ​​of the Russian state budget over time (being expressed in rubles).

Having made these clarifications, the first observation to make is that the Russian state structurally spends very little on its 146 million citizens. This conclusion is reached by comparing Italian public spending in 2021 (the year before the attack on Ukraine), equal to 1,025 billion euros (of which 64 billion for interest on public debt), with the Russian one in the same year , equivalent to 24,762 billion rubles (i.e. 291 billion euros, applying the current exchange rate of 85). In short, the Russian state is decidedly stingy, given that Italy spends 3.5 times what Russia spends on 146 million inhabitants for 60 million citizens, with the consequence that our governments spend over 8 times more for each resident. (840%) than Putin does for his beloved subjects.

The data in Table 1 say many other things, starting with the fact that in recent years, both before and after the conflict, the Russian state has managed to keep public finances in balance. In fact, in 2021, the year that preceded the attack on Kiev, the Russian treasury was even in surplus (pure science fiction in our latitudes), and even in the last 2 years of the war, the deficit, translated into our currency, it stopped at just over 30 billion euros (small change compared to the Italian deficit for the years 2020-2021, above 100 billion euros, and less than half of the 2022 deficit, which had approached 70 billion).

In short, war doesn’t cost that much, apparently.

But how is all this possible?

The answer lies, firstly, in the fact that Putin and his subjects are sitting on a boundless mine, rich in energy raw materials and minerals (including gold), so much so that approximately 50% of the Russian state’s revenue does not come from taxes, but from revenues deriving from the sale of oil, gas, coal, and many other minerals. This statement, which derives from the observation of columns 3, 4, and 5 (starting from the left) of table 1, can be better understood by examining table 2 below, which compares the percentage of public revenues coming from, respectively, from sources other than taxes (such as revenues from raw materials), and taxes.

Table 2

The revenue breakdown of the Russian Federation 2020-2024

As can be seen, non-tax revenues are structurally around 50%, a very high percentage (presumably rare in the world).

It follows that if the cost of the conflict weighed only on the shoulders of Russian taxpayers, even net of the patriotism (or stupidity) of Tolstoy’s heirs, the spending capacity of the Russian Federation would be significantly impaired, not only because it is possible that the propensity to pay much higher taxes could be more limited compared to the propensity to support Putin, but also due to the objective income capacity of the residents of Moscow and surrounding areas, and therefore fiscal capacity, which is modest, given that the GDP per capita in Russia was in 2023 of just 13,300 dollars (IMF data), 3 times smaller than the Italian GDP per capita (which is close to 39 thousand dollars). Therefore, it is the natural resources that allowed Putin the risk of attempting to reconstruct the USSR, starting with Ukraine.

But how great is this wealth?

Given that the writer has focused only on a part of the mineral assets, it must be said that, as regards oil, Russia is credited (OPEC data) with having known reserves of 80 billion barrels (out of a global total of 1,564 billion), therefore 5% of the total, while on the gas front Putin can count on 48,000 billion cubic metres, approximately 25% of the world’s reserves, which amount to 210,000 billion cubic metres.

Moving on to the minerals front, suffice it to say that in 2023 Russia was the second country in the world for gold production (data from the World Gold Council), not far from China, with 325 tons per year, and the 5th producer iron world championship (according to the Statista website). This information should be enough to understand that there is no Western sanction that can sufficiently weaken Russia from an economic point of view.

In this context, the speech to the Duma by the governor of the Russian Central Bank, Elvira Nabiullina, who on 10 April reassured parliamentarians, recalling that demand in Russia (presumably public demand for armaments, ed.) is pushing the economy , a circumstance that does not bring down inflation, which justifies an interest rate of 16%, and yet loans for businesses grow (a situation that is simply inconceivable to us, confirming that the Russian economy is based on different mechanisms from ours).

In the face of this positive picture, Nabiullina, as is her style, did not miss signs of concern, deriving from the stagnation of exports (probably due to sanctions, ed.), and from the increase in imports, which by increasing demand of foreign currencies, will most likely lead to a further depreciation of the ruble, and therefore a further push towards inflation due to the use of imported goods, the price of which, translated into rubles, will continue to rise.

But in light of the considerations reported in this article, they are just small clouds in a radiant blue sky.

Good for Putin, worse for us…