Kristalina Georgieva, Managing Director of the International Monetary Fund, during a press conference at IMF Headquarters on April 14, 2023.
Kevin Dietsch | Getty Images News | Getty Images
The head of the International Monetary Fund warned that Russia's economy still faces significant headwinds despite the Washington-based institution's recent growth upgrade.
Russia's economy has proven surprisingly resilient amid waves of Western sanctions in the nearly two years since the country launched its all-out invasion of Ukraine.
In late January, the International Monetary Fund more than doubled its forecast for the pace of the country's economic growth this year, to 2.6% from 1.1% in October.
Nevertheless, IMF Managing Director Kristalina Georgieva sees more problems ahead for the country of about 145 million inhabitants.
Speaking to CNBC's Dan Murphy at the World Governments Summit in Dubai, Georgieva described what she believes was fueling Russia's growth and why the forecast figure doesn't tell the full story.
“What it tells us is that this is a war economy in which the state – let's not forget, had a very significant buffer, built up over many years of fiscal discipline – is investing in this war economy. If you look at Russia today, production is going up, [for the] army, [and] consumption decreases. And that's pretty much what the Soviet Union used to look like. High production level, low consumption level.”
Russian defense spending has increased dramatically since the start of the war. Last November, Russian President Vladimir Putin approved a state budget that increased military spending to roughly 30% of budget expenditures, representing an increase of almost 70% between 2023 and 2024.
According to Reuters analysis, defense and security spending is expected to account for around 40% of Russia's total budget expenditure this year.
At the same time, however, more than 800,000 people have left Russia, according to estimates by exiled academics last October. Many of those who have fled are highly qualified workers in fields such as IT and sciences.
“I actually think that the Russian economy is facing very difficult times because of the outflow of people and because of the reduced access to technology that comes with the sanctions,” Georgieva said.
“So while this number seems like a good number, there's a bigger story behind it, and it's not a very good story.”