Russian Military Budget Expenditures

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.

Thus the CIA adopted a "direct-costing" method, which estimated number of units in each military program, and then applied estimated individual prices to each unit. The direct-costing or building-block approach was only by CIA because of the large amount of data on Soviet military activities needed to apply it. CIA calculated the ruble and dollar costs of all Soviet defense activities, except RDT&E, by identifying and listing Soviet forces and their support apparatus. By 1983 the CIA model contained a description of over 1,000 distinct defense components. CIA's estimtes were cricicized by some for failing to allow sufficiently for the differences in the quality of goods and services in the USSR and USA. Soviet products were treated by CIA as comparable to those of the USA, though admittedly they were often inferior to the latter. Critics charged that CIA had underestimated the Soviet defense budget by a factor of two in 1970 and possibly by a factor of three by 1979. Other critics charged that the CIA estimates had been slanted upward, to make Soviet military spending appear larger, supporting the Reagan-Bush-Pentagon military buildup policies.

On 23 February 1985 the Central Intelligence Agency reported that Soviet military spending in 1981 had exceeded that of the United States by 45 percent. US military spending that year was $175.5 billion in current dollars, or $406 billion in constant Fy2008 dollars. Soviet military spending in 1981 would have been estimated, therefor, at about $590 billion in constant FY2008 dollars. Testimony it gave to Congress in November 1984 said the annual growth in total Soviet military spending had averaged 4 to 5 percent from 1965 to 1976 but has declined to about 2 percent since then. By another estimate, in 1988 the Soviet Union spent the equivalent of $300 billion on their military programs, or about $520 billion in constant FY2008 dollars, as much as 17 percent of Soviet gross national product (GNP).

In retrospect, CIA appears to have both overstated the size and growth rate of the Soviet economy and underestimated the burden of military expenditures on that economy and on that society. The CIA tended to overstate Soviet GNP in relation to that of the US. President Mikhail Gorbachev himself confirmed in his memoirs, "... it turned out that military expenditure was not 16 per cent of the state budget, as we had been told, but rather 40 per cent; and its production was not 6 per cent but 20 per cent of the gross national product".

To these long-standing Soviet-era challenges must be added a variety of 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.

During the 1990s 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 was impossible to estimate, but during the 1990s it was surely substantial.

Purchasing power parity (PPP) exchange rates are the value of goods and services produced in the country valued at prices prevailing in the United States. This is the measure most economists prefer when looking at per-capita welfare and when comparing living conditions or use of resources across countries. The measure is difficult to compute, as a US dollar value has to be assigned to all goods and services in the country regardless of whether these goods and services have a direct equivalent in the United States (for example, the value of an ox-cart or non-US military equipment); as a result, PPP estimates for some countries are based on a small and sometimes different set of goods and services. In addition, many countries do not formally participate in the World Bank's PPP project that calculates these measures, so the resulting GDP estimates for these countries may lack precision. For many developing countries, PPP-based measures are multiples of the official exchange rate (OER) measure. The difference between the OER- and PPP-denominated values for most of the weathly industrialized countries are generally much smaller.

In 1993 the 450-to-the-dollar ruble official exchange rate gave Russia a gross national product comes to about $38 billion, and a per capita income of $250. A more realistic purchasing power parity rate would be about 12 rubles to the dollar, suggesting that Russia's GNP, even after as 35% fall since 1990, would be worth about $1.4 trillion. By 2003 several different purchasing power parity (PPP) exchange rate measures indicated the ruble was undervalued at an official average exchange rate of R31/$, and would be fairly valued at R15/$ to R18/$.

The ruble gained over 25% in value against the official exchange rates for the dollar from 2002 through 2007 (and the dollar has depreciated by 20 percent against the ruble.) The official exchange rate was 25.47 rubles to the dollar in August 2007, compared to an average rate of 28.81 rubles to the dollar in 2005 and 28.28 rubles to the dollar in 2005. As measured by purchasing power parity, a gauge of a currency's value based on the goods it can buy, a dollar should buy roughly 15 rubles by August 2007. The ruble's value is 15.2 to the dollar, according to The Economist's annual Big Mac index, published in January 2007. The index calculats purchasing power parity by pegging currencies to the cost of a single Big Mac sandwich. The latest rate was a slight drop compared to the January 2006 Big Mac index, when the ruble was valued at 14 to the dollar. This decline contradicted the official exchange rate trend during 2006, which saw the ruble rise against the dollar.

1996 estimate 2000 estimate 2003 estimate
Year Current $ ConstantCurrent $ConstantCurrent $Constant
1985 277.2415.0
1986 287.6426.1
1987 303.0435.6303.0435.6
1988 319.0443.3319.0443.3
1989 303.0405.9303.0405.9
1990 292.0376.2292.0376.2
1991 260.0324.5260.0324.5
1992 159.2193.571.386.964.072.9
1993 125.0148.062.474.155.962.2
1994 93.0107.761.771.755.260.1
1995 76.085.940.946.637.740.2
1996 37.742.134.736.3
1997 41.745.939.340.4
1998 28.428.8
OER Current $PPP Current $PPP Constant 2008 $IISS Current $IISS Constant 2008 $ SIPRI PPP Current $
2000 .
2001 .
2002 5.
2003 10.521.
2004 14.
2005 18.759.1.
2006 24.982.8
2007 3153.
2008 .
2009 .
2010 .
Dollars in billions

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