Kristalina Georgieva, Executive Director of the International Monetary Fund, at a press conference at IMF headquarters on April 14, 2023.
Kevin Deitch | Getty Images News | Getty Images
Dubai, United Arab Emirates – The head of the International Monetary Fund warned that the Russian economy still faces significant headwinds despite receiving a recent growth upgrade from the Washington-based institution.
The Russian economy has proven surprisingly resilient amid waves of Western sanctions in the nearly two years since it launched its full-scale invasion of Ukraine.
In late January, the International Monetary Fund more than doubled its forecast for the pace of economic growth in the country this year, raising it from 1.1% in October to 2.6%.
Despite this, International Monetary Fund Director Kristalina Georgieva sees more problems ahead for the country with a population of about 145 million.
Speaking to CNBC's Dan Murphy at the World Government Summit in Dubai, Georgieva described what she believes is fueling growth in Russia and why the projected number doesn't tell the full story.
“What it tells us is that this is a war economy in which the state — which, let us remember, had a very large reserve, built up over many years of fiscal discipline — is investing in this war economy. If you look at Russia today, production is rising.” [for the] army, [and] Consumption decreases. This is pretty much what the Soviet Union looked like. High level of production and low level of consumption.”
Russian defense spending has risen significantly since the beginning of the war. Last November, Russian President Vladimir Putin approved a state budget that increased military spending to nearly 30% of fiscal spending, which equates to an increase of about 70% from 2023 to 2024.
Defense and security spending is expected to make up about 40% of Russia's total budget spending this year, according to a Reuters analysis.
But at the same time, more than 800,000 people have left Russia, according to estimates by exiled academics collected last October. Many of those who have fled are highly skilled workers in fields such as information technology and science.
“I actually think the Russian economy is going through very difficult times because of the influx of people abroad, and because of the reduced access to technology that comes with the sanctions,” Georgieva said.
“Even though that number seems like a good number, there's a bigger story behind it, and it's not a very good story,” he added.
