The 2025 draft budget recently outlined by Russia’s finance ministry shows that, rather than falling next year as initially planned, defence spending will rise by more than 20% to hit 6.2% of GDP. While personal income and corporate tax hikes will help to fund some of this, the overall fiscal stance looks set to remain far too loose. Alongside binding supply-side constraints this will keep inflation strong and with sovereign bond yields at their highest levels in decades the government’s debt servicing costs will continue to rise.
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