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| Russian Military Budget content from globalsecurity.org In 1988 military spending was a single line item in the Soviet state budget, totaling 21 billion rubles, or about US$33 billion. Given the size of the military establishment, however, the actual figure was at least ten times higher. Western experts concluded that the 21 billion ruble figure reflected only operations and maintenance costs. The amount spent on Soviet weapons research and development was an especially well-guarded state secret, and other military spending, including training, military construction, and arms production, was concealed within the budgets of all-union ministries and state committees. Apart from considerations of state secrecy, this allocation of military spending to ministries other than the Ministry of Defense reflected the Soviet approach to managing resource allocation. Weapons produced by agencies such as the Ministry of General Machinebuilding [missiles] or the Ministry of Shipbuilding Industry [ships] were essentially provided as "free goods" to the Ministry of Defense. Since the mid-1980s, the Soviet Union devoted between 15 and 17 percent of its annual gross national product to military spending, according to United States government sources. Until the early 1980s, Soviet defense expenditures rose between 4 and 7 percent per year. Subsequently, they slowed as the yearly growth in Soviet GNP slipped to about 3 percent. In 1987 Gorbachev and other party officials discussed the extension of glasnost' to military affairs through the publication of a detailed Soviet defense budget. In early 1989, Gorbachev announced a military budget of 77.3 billion rubles, but Western authorities estimated the budget to be about twice that. With the end of the Cold War, the combined military expenditure of Russia and other successor states of the USSR fell dramatically. In 1997 it was around one-tenth of that of the USSR in 1988. Between 1988 and 1993 weapons production in Russia fell by at least 50% for virtually every major weapons system. Weapons spending in 1992 was approximately 75% less than in 1988. Almost all of Russia's arms production is for sales to foreign governments, and procurement of major end items by the Russian military had all but stopped. The difficulties in estimating Soviet and Russian military spending are well known. Major challenges include the lack of transparency in officially published numbers reported (particularly before 1992, and increasingly in the late 1990s), as well as the extent to which military expenditures continue to be allocated to ministries and agencies other than the Ministry of Defense. To these long-standing Soviet-era challenges must be added a variety of more recent problems posed by post-Soviet developments. During the mid-1990s the Russian economy exhibited extraordinarily high inflation rates, which rendered formal budgets nearly meaningless, and certainly quite difficult for external observers to comprehend. Throughout the 1990s there were substantial difference between adopted military budgets and actual expenditures, reflecting shortfalls in government tax revenues. Military units and defense industry enterprises engaged in a variety of creative methods to compensate for the vagaries of the state budget, ranging from the commercial sale of military goods and services by military units, to subsidies to defense enterprises from more profitable sectors of the economy. Many defense plants and defense bases receive hidden subsidies from regional and city governments in the form of free land, electricity, food supplies, and other services. Much defense budget money actually goes for civilian production and social services for defense workers. The magnitude of these activities is impossible to estimate, but during the 1990s it was surely substantial. 1996 Budget The 1996 defense budget of the Russian Federation, ratified by the State Duma in December 1995, allotted 78.9 trillion rubles (about US$19 billion), of which about 16 percent, or 12.6 trillion rubles (about US$3.0 billion), was allocated to acquisitions, and 7.3 percent, or 5.8 trillion rubles (about US$1.4 billion), was earmarked for research and development (R&D). Russia's 1995 budget had allocated 10.2 percent to R&D and 21.2 percent to acquisitions. By comparison, the 1996 United States budget for the Department of Defense totaled US$249 billion, of which US$39 billion (15.7 percent) was designated for acquisitions and US$34 billion (13.7 percent) for R&D. In February 1996, the Security Council allocated between 50 and 54 trillion rubles (US$10 to US$11 billion) to fund additional state orders from the MIC, including money for accelerated R&D and production of advanced weapons systems. This supplementary, targeted allocation represented a significant increase over the allocations for 1994 (US$2 billion) and 1995 (about US$3.4 billion), indicating a possible redirection of resources to R&D even as the military operating budget remained flat. 1997 Budget As of 1997 Russia's defense budget was estimated to be about $65 billion annually, about 45 percent of the 1992 total. According to another estimate, military expenditure had fallen from an estimated $257 billion in the USSR in 1987 to $24.1 billion in Russia in 1997, and as a proportion of GNP from 16.6% in 1987 to 3.8% in 1997. Yet a third estimate placed total military expenditures at $41.7 billion. By any estimate, Russian military procurement had slowed to a crawl. Whereas about 1,200 tanks and infantry fighting vehicles were bought in 1992, only about 355 were acquired in 1997. Production of combat aircraft similarly fell from 170 in 1992 to 35 in 1997. Other sources paint a decidely more bleak portrait, suggesting an almost complete cessation of military hardware acquisition in the 1990s. Even so, Russia still has the largest military forces and defense budgets of any country in Europe and Eurasia. Yeltsin made it clear in mid-1997 that military reform would be constrained by economic resources, and his decision was confirmed in the National Security Concept. Following Yeltsin's decision, concrete steps were taken to reform the armed forces within the severely retrenched defense budget under the leadership of Defense Minister Igor Sergeev. In accordance with the reform program, Russia planned to reduce the number of troops by 300,000 in 1998 in addition to the 200,000 it had cut in 1997. As a part of the organizational reform aimed at increasing efficiency and cutting military personnel, the Strategic Missile Force and the Military Space Force were integrated in 1997 and the Air Defense Force was merged with the Air Force in 1998. 1998 Budget The budget for the first three quarters of 1998 (January through September) was USD 7.00 billion or 50.6 billion new rubles (the average exchange rate for the first three quarters of 1998 was 1 USD equals 7.23 new rubles). Actual expenditures for this period were 4.66 USD or 33.7 billion, i.e. 66.5 percent of budget was fulfilled. For the first three quarters of 1998, actual military expenditures were 1.8 percent of overall GDP. The budgeted amount would have constituted 2.7 percent of GDP. As opposed to the years 1996-97, the military's budget in 1998 was closed. An unofficial line-item defense budget is published on a monthly basis in Krasnaya Zvezda. This unofficial budget occasionally reflects discrepancies such as the receipt of less money by the Ministry of Defense than that which the Ministry of Finance announces as paid. Via this unofficial budget, the military demonstrates their accountability for what money is received, and documents their claim that they do not receive enough funds to be combat ready. On the other hand, the Finance Ministry and treasury have been unsuccessful in obtaining a detailed accounting of defense expenditures consistent with the budget. The Defense Ministry maintains the only federal government agency not yet included in the treasury's cash management system. By the mid-1990s combat training had become virtually non-financed, with the military receiving only 6 percent of the resources required for combat training in 1998. Even this amount was apportioned only for maintaining infrastructure, forcing the military to finance fuel, ammunition, and training equipment costs from other sources. Training continues to be conducted on a reduced scale or is replaced by less resource-intensive activities (e.g., command post exercises replacing field tactical exercises). Personnel shortfalls, combined with lack of materiel, contributed to postponement or non-execution of unit training plans. In the ground forces, only 35 percent of planned regimental-level and 73 percent of battalion-level tactical exercises were conducted in 1998. Sea duty for Russian fleet submarines was reduced by 25 percent and for surface vessels by 33 percent. Russian air force elements executed between 15-40 percent of their standard training norms. This is contributing to rapid decay of combat readiness; according to MOD internal assessments, the average Russian soldier is only marginally combat capable. 1999 Budget By 1999 there was some indication of a new effort on the part of the Russian military to increase training activities, or at least to stage visible maneuvers to create the appearance of higher levels of combat readiness. The largest strategic command and staff exercises in the post-Soviet era, �Zapad-99� (West-99), took place 21-26 June 1999. It involved the participation of five military districts (Moscow, Leningrad, North Caucasus, Volga and Urals MDs), three districts of the Internal Troops of the Interior Ministry, with participation of three Fleets (Northern, Baltic and Black Sea) and coordination of the Belarusian armed forces. The war game scenarios tested the ability of Russian armed forces to coordinate the repulsion of aggression from the West and so restore the territorial integrity of the Federation. This included repelling an offensive air raid on Belarusian territory and lifting a blockade on Kaliningrad region, as well as simulating the use of limited nuclear strike � a provision of Russian military doctrine employed when all conventional measures are exhausted - on the territory of �neighbouring countries�. This exercise underscored Russia�s desire to project power, but it was clear that by any comparisons with �Zapad-81� this was a minor and unsustainable operation. As of 01 January 1999, the authorized peacetime strength of the Russian armed forces was to be 1.2 million, following massive personnel cuts and reduction of peacetime billets over the previous two years. Actual personnel strength was difficult to determine, due to lack of standardized counting methods and internal security procedures, which obscure strength figures. The actual strength of the Russian armed forces probably was between 1.4 and 1.6 million as of early 1999. Ministry of Defense (MOD) and press reports estimated actual personnel strength of the armed forces at 80-85 percent of the authorized peacetime manning levels. According to the minister of defense Igor Sergeev, out of 105,8 billion rubles appropriated to the Ministry of Defense in 1999 only 41,2 billion was received, which was less than 39% of the total amount. By 01 October 1999 the total expenditure for defence (excluding the Ministry of Atomic Energy) was 91.7 billion roubles, according to a statement on 07 October by the representatives of the Main Department on Military Budget and Financing of Russian Defence Ministry on the performance of the defence budget. Within 9 months 65.4 billion roubles had been transferred to the Defence Ministry accounts, which meant that the defence budget had been 71% fulfilled. As of June 2000 Russia's draft 2000 budget earmarked 110.9 billion rubles (or 2.17 percent of GDP) for defense. This was well under the 3 percent of GDP called for by the Duma, which had previously resolved that the assignments under the clause " National defense " in the 2000 year budget should be not less than 153 billion roubles -- 3% of a total internal product estimated at 5.1 trillion rubles. On 15 September 1999 Deputy Prime Minister Ilya Klebanov said that by 01 September 1999 the state defense contract was paid up to the extent of 45 percent as against 20 percent by the same date of last year. And it is very likely that for the first time ever the 1999 state defense contract will be paid up in full, for the first time since 1992. The overall figure in the draft state defense contract for the next year was 36 billion rubles, including research and development, purchases of new military hardware and weaponry, maintenance and modernization as well as capital construction. And on 16 September 1999 Deputy Prime Minister Ilya Klebanov said that beginning in 2000, financing for state defence orders would be increased by 50%, and that all debts on state defence orders for the previous years would be written off by the end of first quarter in 2000. 2000 Budget Russian Deputy Prime Minister Aleksei Kudrin announced on 16 October 2000 that projected defense spending for next year had been increased by 12.5 billion rubles. Kudrin provided few details of the new budget figures, which apparently brought defense spending for 2001 to 218.5 billion rubles, but suggested that the increase has been approved to help finance military reforms. Russia's 2001 overt defense budget was $7.3 billion, but more was spent in hidden accounts. The structure of the state defense order for 2000 changed. Priority was given to the acquisition of sophisticated modern weapons, in light of the events in Chechnya. Previously, financing of strategic nuclear deterrence forces had been a priority, and up to 80% of assignments for the state defense order were spent on their needs. It was planned that beginning from 2000 the state defense order would comprise two priority directions: assignments for the nuclear deterrence forces, and assignments for purchase of conventional arms including the precision guided weapons. Russian media sources have reported large increases in military procurement since the year 2000 - a 25 percent increase in 2000 compared with 1999; a 20 percent increase in 2001 over 2000; and whopping 40 percent increase in 2002 compared to 2001. According to the resolutions of the Security Council meeting of 11 August 2000, the major reform measures of the general purpose forces will be accomplished by 2006. The force level reductions will commence in 2001 and the main reductions are to be completed by 2003. By that time these forces will have about 850,000 servicemen, for a total reduction of 350,000-400,000 troops. The army would lose 180,000 men, the navy more than 50,000 and the air force about 40,000. There would be further cuts in the number of border guards, railway troops and Interior Ministry troops. The internal troops of the Russian Interior Ministry are expected to be reduced by over 20,000. The number of railway troops will be reduced by 10,000 and the Federal Border Guard Service will be reduced by 5,000. Other ministries and agencies that have military formations will be reduced by a total of over 25,000 people. The number of units and formations of permanent readiness will be substantially increased. Defense spending of 3.5% of the GDP may grow if the GDP grows more than 7% a year (as was the case in 2000) for several years in succession. By 2016, the plan is to spend 50% of the military budget on operations and maintenance, and 50% on their development (research and development and purchase of armament and combat materiel). 2001 Budget Although estimates of defense budgets of non-NATO nations are inherently imprecise, The Military Balance, 2000-2001 by the International Institute for Strategic Studies set Russian military expenditures at $56 billion. 2002 Budget In January 2002 the Cabinet approved a plan to boost spending on arms, upgrades and research in 2002. The procurement plan topped the previous year's expenditures by nearly 40 percent. In 2001 Finance Minister Alexei Kudrin had indicated that the 2002 procurement budget would likely increase by 27 billion to 79 billion rubles ($850 million to $2.5 billion). The entire 2002 national defense budget is 284.18 billion rubles. The the major priorities are developing a next-generation fighter and new nuclear submarine, as well as new technologies in communications and conventional weapons. Analysis of the information to be found in non-classified addenda to the Federal Law "On the 2002 federal budget" show that the total funds set aside for defense spending in 2002 were about 5% less than what was set aside for the purpose in 2001. It amounted to only one-quarter of all budget spending, or 494.6 billion rubles. Combat training and development of the Armed Forces got almost 56% all defense spending. Research, repair, and rearmament got 27 billion more than in 2001. The money will not buy new military hardware on any noticeable scale. Acquisition is planned for after 2005 when the Kremlin says the national economy has grown. Conscripts are paid 1 ruble a day (about 3 cents US), while the contract servicemen, about $167 a month. Their level of motivation remains low, and they are prone to involvement in local criminal operations, including arms trafficking networks. Minister of Industry, Science and Technology, Ilya Klebanov, announced during his meeting with President Putin on 06 August 2002 that the security agencies would pay off the major part of debts to the military industrial complex in 2002, and the remaining part would be postponed until 2003. In the past Klebanov promised to pay off all debts to the military industrial complex back in 2001, then everything was postponed until 2002, and this time until 2003. So far the State has a "spare" year and is going to spend the money primarily on return of debts to other countries. These debts are big, and that is why the Armed Forces will hardly receive more than 2.6% of GDP. For a few years in succession, the Russian military budget has been financed at the level of 2.6% of GDP. In 1999 the record lowest sum, 2.34%, was assigned by the country's budget for defense. In the USSR military expenditures amounted to 7-11% of GDP. In 2002, the US spent up to 3.2% of GDP on defense. Military pay scales in 2002 were equalized with salaries of state officials. However, the actual average increase in officers' salaries reportedly amounted to only 35%. The projected rate of inflation was estimated to be 18% for 2002. The end result was a net loss for military personnel and the quality of life for their families by any accounting standard. 2003 Budget Russia's defense budget was flat in 2002, but looked set to increase by 7-8 per cent in real terms in 2003. When Sergei Ivanov spoke to deputies on 11 September 2002, he said that in 2003 defense expenditures would amount almost to 380 billion rubles [which would be one-third more than in 2002]. The conclusion of the Duma Defense Committee on the draft budget for 2003 signed by chair of the committee, Andrei Nikolaev, mentioned quite different figures for the military budget for 2003, namely 345.7 billion rubles, which corresponded to its increase by 20.3% in comparison to 2002. As of December 2002, according to the Duma Defense Committee, defense spending in 2003 would account for 2.6 percent of GDP, or 14.6 percent of total budget expenditure. Russia's GDP grew by 7.3% during 2003 to 13.255 trillion rubles or US $460 billion in nominal terms, propelled by high oil prices, moderate inflation (12%), and strict government budget discipline. Real incomes grew by 10%, spurring considerable growth in private consumption. Industrial output in 2003 grew by 7% compared with 2002. 2004 Budget In July 2003 Defense Minister Sergei Ivanov stated that the Russian government had cut the funding for its planned transition to a mostly professional army by more than 40 percent, or US$2 billion over the next four years. Ivanov said that funding until 2008 for military reform was cut from 138 billion rubles (US$4.6 billion) to 79.1 billion rubles (US$2.6 billion). Almost half of the country's soldiers would remain conscripts after the first phase of the reform ended in 2008. A total of 147,500 soldiers and sergeants would be recruited as contract servicemen in 2004-2007. In the 2004 Defense Budget 118 billion rubles [$4 billion] was set aside for purchases, but the end result is that two tanks or four tanks, two helicopters and one airplane are bought per year. 2005 Budget Defense appropriations emerged as the top priority in the draft budget approved 23 August 2004 by the Russian cabinet. Military spending is due to rise to 528 billion rubles ($18 billion - $1 is about 29 rubles) in 2005, up 28 percent from last year's 411 billion rubles ($14 billion). The nominal defense budget stays at a level of 2.6% to 2.7% of GDP. Years of neglect and under-funding have left the Russian forces in desperate need of extra funds. For 2005 the military was supposed to spend 146 billion rubles [$5 billion] for modernization. The 2005 budget continues to compensate for these lean times. The increase appears very large, but these numbers -- over 25 percent -- do not take inflation into account. Inflation up to now in Russia has been considerable. The government says that inn 2005 they will be able to lower it below 10 percent annually, but it's not clear if they will be successful. So in reality, the increase in defense spending is around 15 percent. A specific feature of the 2005 budget was a significant increase in defense spending (by 27.7% compared with this year), and in spending on national security and law-enforcement activities (by 26%). Without any problems, the 2005 budget was approved by deputies in its fourth and final reading and then submitted to the Federation Council, which supported the budget at a special session on 10 December 2004. Although the Russian military remains at a fraction of its former strength, training rates and defense spending were increasing |