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Russia is facing challenges in its war economy as the outflow of people and shortages of technology continue to impact the country, according to the International Monetary Fund’s managing director Kristalina Georgieva. Despite high military spending boosting economic growth, Georgieva noted that state-funded arms and ammunition production masks the problems affecting living standards for Russians.

Georgieva spoke with CNBC about the IMF’s forecast of 2.6% GDP growth for Russia this year, expressing concern about the situation in which military production is increasing while consumption is decreasing, a pattern similar to what the Soviet Union experienced with high production and low consumption.

Although Russia’s economy rebounded sharply from a slump in 2022, resulting in 3.6% growth in 2023 after a 1.2% contraction the previous year, Russia-based economists have pointed out that this economic growth is of poor quality, emphasizing that missiles and shells may contribute to higher GDP but offer limited benefit to the population.

Georgieva also highlighted that Russia’s economy is facing tough times due to sanctions that have reduced access to technology and led to an outflow of people. She suggested that there is a bigger story behind Russia’s seemingly positive 2.6% GDP growth forecast than meets the eye.

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