Russia’s Gamble: Rebuilding the Economy Around War Risks the Country’s Future

Lead

For four years, President Vladimir V. Putin has oriented Russia’s domestic policy and public finance around the war in Ukraine, a campaign that began on Feb. 24, 2022. The Kremlin’s focus has helped stabilize front-line operations and shape negotiating positions in talks mediated by Washington, but at steep cost: the conflict has killed or wounded as many as 1.2 million Russians and redirected an estimated half of the federal budget toward the fighting. Economists and former officials warn that heavy, sustained investment in military output — rather than in roads, schools or technologies — could undercut Russia’s long-term growth and demographic resilience.

Key Takeaways

• Since Feb. 24, 2022, Russia has concentrated state resources on the war in Ukraine; publicly available reporting estimates roughly 50% of the federal budget now supports the conflict and related military spending.
• Casualty estimates tied to the war reach as high as 1.2 million Russians killed or wounded, a human toll that reduces labor supply and increases long-term social costs.
• Defense-focused spending prioritizes tanks, shells, munitions and veteran benefits — items with limited contribution to productive investment or technological diversification.
• Russia entered the war with preexisting economic weaknesses: commodity dependence, weak diversification, falling birthrates and tightening political controls that constrained innovation and foreign partnerships.
• Analysts say the reorientation of public funds toward short-lived military goods and benefits risks damaging capital formation, public services and demographic recovery for a generation.
• International sanctions and the redirection of human and financial capital have narrowed options for foreign investment, deepening Russia’s reliance on state-directed industrial policy and resource exports.
• Short-term tactical gains on the battlefield have not eradicated the structural trade-offs between security spending and long-term development.

Background

Before 2022, Russia’s economy already showed signs of structural strain: growth linked to oil and gas exports, limited diversification into high-value industries, and a population that shrank after a post-Soviet decline in birthrates. Over the past decade, rising centralization under Mr. Putin reduced political competition and increased state control over key sectors, which critics say dampened entrepreneurship and external collaboration.

The full-scale invasion of Ukraine on Feb. 24, 2022, accelerated a reallocation of public resources. Moscow shifted subsidies, procurement, and budget priorities toward defense firms and military logistics. At the same time, Western sanctions and reduced foreign investment further constrained avenues for technological modernization and import-dependent production.

Main Event

In the four years since the invasion, Kremlin policy has prioritized war-sustaining spending and a broader militarization of economic policy. Federal procurement lists grew to include large quantities of armor, ammunition and spare parts; social transfers for military families and veterans expanded; and many skilled workers were mobilized into military-related industries or into the ranks themselves. Officials argue these measures were essential to recover momentum after an initially faltering campaign and to secure strategic objectives.

Budget documents and public reporting show a significant rise in allocations labeled for defense and security. Officials and state-linked firms streamlined production lines for military hardware and redirected scientific and industrial capacities toward munitions and logistical support. Critics counter that this leaves fewer funds for public goods that underpin long-term productivity, such as education, health care, and civil infrastructure.

The human cost of this reorientation has been large. Independent and journalistic estimates place total killed and wounded at up to 1.2 million Russians; that scale of loss weighs on the labor force, on families and on public finances through pensions and medical care for the injured. Demographic shrinkage prior to the war compounds the problem, narrowing the pool of working-age adults available for reconstruction or economic diversification.

On the diplomatic front, Moscow’s battlefield gains have been used to press for favorable terms in talks mediated by Washington, shifting bargaining positions but not eliminating the mutual security and economic consequences that follow prolonged conflict. Meanwhile, sanctions and import controls have sharpened incentives for import substitution, state-led industrial policy, and deeper ties with a narrower set of foreign partners.

Analysis & Implications

Channeling roughly half of the federal budget into war-related items produces immediate output — tanks, shells, salaries — but contributes little to enduring capital formation. Economists distinguish between consumption of war materiel and investment in technology, infrastructure, or human capital; the former delivers short-term utility but limited productivity gains. Over time, this pattern can depress potential GDP growth by reducing investment in productive capacity.

Demographics interact with budgetary choices. A large pool of wounded veterans and a continuing fall in birthrates reduce labor participation and raise dependency ratios; more public funds will be needed for health care and pensions, leaving fewer resources for growth-enhancing programs. The net effect is a feedback loop: war spending strains the budget, demographic decline raises social spending, and constrained investment weakens future growth.

Sanctions magnify these dynamics by limiting technology transfer and access to international capital. This forces Moscow to favor domestic, often less efficient suppliers and to expand the role of state enterprises. While short-run industrial mobilization can sustain military production, it tends to freeze out private-sector-led innovation and foreign partnerships that historically drive productivity upgrades.

Politically, the Kremlin’s prioritization of security over development reshapes elite incentives. Firms and regions that benefit from military contracts gain influence; sectors dependent on civilian demand or export markets face decline. Over time, this may lock the state into a wartime political economy that is resistant to rapid pivoting back to peacetime priorities.

Comparison & Data

This simplified table summarizes the broad reallocation described in reporting. It is not a line-by-line budget breakdown; some categories are blended in official accounts. Analysts note that within the remaining half of the budget, shares for health, education and infrastructure have been squeezed relative to prewar baselines, reducing long-term investment capacity.

Reactions & Quotes

Former officials and independent analysts have been among the most vocal critics of the budgetary turn, arguing that large-scale procurement and veteran benefits provide short-lived returns for national development.

“You have lots of money spent on tanks, shells, bombs, military benefits and other things — no long-lasting value, nothing that works on what we call development.”

Alexandra Prokopenko, former Russian central bank official and Carnegie Russia Eurasia Center fellow

Prokopenko, now at a Berlin-based think tank, framed the spending shift as a diversion away from investment that would raise productivity. She emphasized that many wartime outputs are consumed rather than converted into durable capital that expands future output.

Moscow’s public posture emphasizes security and sovereignty as justification for the spending. Officials frame the budget choices as necessary to protect the nation and to ensure operational success in the face of sanctions and what the Kremlin calls hostile foreign policies.

(Paraphrase) The Kremlin says priority spending on defense is required to guarantee national security and rebuild military capacity after initial setbacks.

Kremlin statement (paraphrase)

This paraphrase reflects the official rationale presented in government briefings and state media: that concentrated investment in defense is a short-term necessity to preserve state interests and negotiating leverage.

Unconfirmed

• The precise, consolidated tally of killed and wounded remains uncertain and varies by source; the 1.2 million figure is an estimate cited in reporting but is not an official consolidated total.
• Long-term productivity losses and the exact impact on future GDP growth depend on future policy choices and external shocks and cannot be precisely projected at this time.

Bottom Line

Russia’s redirection of roughly half its federal budget toward war-related spending has helped sustain military operations and to shape diplomatic leverage, but it does so at the expense of investments that underpin sustained economic growth and demographic recovery. The near-term focus on munitions, military pay and related benefits produces tangible outputs for the battlefield while leaving gaps in public goods and capital formation.

If current priorities persist, analysts warn that Russia risks entrenching a wartime economic model: narrower technological exchange, stronger state-directed production in defense sectors, and weaker private-led modernization. Reversing those trends would require substantial policy shifts, reintegration with international markets, and a reallocation of funds back toward education, health and infrastructure over many years.

Sources

• The New York Times — news reporting and budget/casualty estimates (news)
• Carnegie Russia Eurasia Center — think tank commentary and expert affiliations (think tank)
• Ministry of Finance, Russian Federation — federal budget documents and official budget categories (official)