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Lithuania - Military Spending

Lithuania's military expenditure grew 232 percent in 2010–2019, marking one of the sharpest increases in the EU. Meanwhile, the global military spending rose to 1.9 trillion US dollars in 2019. Lithuania spent 2.16% of its GDP on defense in 2002, though a significant part of this went to support the Border Guard and other non-defense institutions. Parliament committed spending 2% of GDP on defense through 2004.

At the end of August 2016, an unfortunate instance involving incompetent public procurements surfaced. Dubbed the “golden forks’ scandal,” it became known that a large portion of the first increase in the national defense budget in 2014 was spent on procuring kitchen utensils for the field units – rather than investing in arms or military equipment; in addition, it turned out the utensils were procured at tens or hundreds of times the market rate. This further damaged the image of the military in the public eye, making further defense budget increases an ever harder sell.

According to its defence spending, which accounts for about 0.8 percent of GDP, Lithuania was second last in the list of NATO countries (the last one being Luxembourg), lagging behind the European average (1.6 percent).17 Since there is a consensus that NATO member countries should allocate 2 percent of their GDP to defence, while the percentage allocated by Lithuania is one of the lowest, defence funding may in the long run become one of the most important factors not only in the context of NATO membership, but also in bilateral relations between Lithuania and the US.

The joint statement signed at the end of August 2013 by presidents of the US, Estonia, Latvia and Lithuania states18 that “Though economic times are challenging, we must all ensure that we sustain adequate levels of defense investment to maintain a capable, deployable, and interoperable force. In this regard, we reaffirm our commitment to achieve or maintain defense spending at 2 percent of GDP”.

The government had committed to - but never reached - the goal of dedicating 2% of GDP to defense spending, but current funding levels sit below 1%. In 2004, 11 Lithuanian political parties committed themselves to granting at least 2 percent of the GDP for defense purposes in the 2005-2008 period as continuation of the analogous document signed in 2001. Nevertheless, the objective was never reached. Lithuania's 2007 budget met the Defense Ministry's goal of programming an increase in defense spending as a percentage of GDP of .05 percent, to 1.25 percent. While this is technically accurate due to modest official forecasts of GDP growth, defense spending is rising more slowly than the budget as a whole and too slowly to meet Lithuania's defense transformation needs.

Parliament's National Security and Defense Committee approved on 18 October 2004 a draft budget allocating 1.86 percent of Lithuania's projected 2005 GDP for defense spending. Approximately 40 percent of this sum, however, would not go to the Ministry of Defense (MOD) directly, but was reallocated to cover defense-related expenses of other Ministries, such as the Ministry of Interior and the State Border Protection Service.

The draft budget allocated roughly 750 million Litas (approximately US$277 million) directly to the MOD, a decrease of approximately 120 million Litas (US$44 million or 14 percent) from 2004. In March 2004, the leadership of eleven political parties signed an agreement committing the two percent GDP funding level for defense through 2008. To meet the two percent commitment, the Ministry of Finance included the approximately 230 million Litas (US$85 million) the EU allocated for the implementation of the Schengen visa regime into its defense budget calculations.

The MOD was disappointed at a "political decision" to divert funds to secondary defense organizations. Parliament's National Security and Defense Committee was comfortable with the allocation since Lithuanian political parties, like those in many other NATO capitals, define "defense spending" broadly to include all Ministries working on defense-related matters.

The Lithuanian MOD's plans for military transformation presumed an annual one percent increase for military spending. While the current budget allocations of defense funds for non-military line items would not affect Lithuania's short term (2006-2008) defense planning goals, if this trend of diverting defense funds from the MOD continued, Lithuania's longer-term goals, including maintaining a NATO-capable battalion, would be at risk. The MOD had hoped to decrease the percentage of defense funds allocated for non-military expenditures, but apparently lost this battle for now. Though the MOD asserted that international operations will not be affected, it was difficult to see how the MOD can meet its long-term NATO force goal commitments with these budget cuts.

A rapidly expanding economy in 2004-2005 allowed the Lithuanian government to increase defense spending in the 2006 budget by approximately 12%, but this increase was insufficient to meet the targeted 0.05% of GDP annual rise and just allowed Lithuania to hold fast at 1.27% of GDP for defense. Despite sustained economic growth (an average 7% annual increase in GDP for the five-year period), with a GDP per capita of only 46% of the EU average, Lithuania had a long way to go to bring its citizens' standard of living up to EU levels. The government's social agenda dictated budget priorities for 2006 spending. A last-minute push by parliamentary supporters of a robust contribution to common defense secured funding for aircraft acquisitions and upgrades to the country's regional radar capability. Military planners expect the funding shortfall will push back deadlines for certain of Lithuania's military transformation goals, including the ability to more rapidly develop logistical units, fund air force modernization, develop naval infrastructure, and accelerate the procurement of specialized equipment for special forces units.

The government committed to supplemental defense allocations with revenues from the anticipated sale of the Mazeikiu Nafta oil refinery. Lithuania's 2007 budget allocated 1.115 billion litas (USD 413 million) to the Defense Ministry and an additional 5 million litas (USD 1.85 million) to other defense spending based on the NATO definition, representing a 14.5 percent nominal increase in defense spending. This was less than the overall increase in budget expenditures of about 21 percent. The budget also allocated 4 million litas to civilian assistance projects administered by the MFA in Ghor province, where Lithuania leads a Provincial Reconstruction Team.

Lithuania publicly committed to meet NATO's unofficial defense spending floor of two percent of GDP by increasing spending as a percentage of GDP by .05 percent per year. Had the budget met this goal since Lithuania joined NATO, defense spending would be 1.32 percent of GDP in 2007. In fact, defense spending as a percentage of Lithuania's surging GDP has been falling. Defense spending for 2006 was only 1.20 percent of GDP, rather than the 1.28 percent that was programmed, down from 1.42 percent and 1.27 percent in 2004 and 2005, respectively. This is largely because Lithuania's GDP growth will exceed the 2006 budget's forecast of seven percent in real terms. Nominal GDP growth was forecast to be 14.5 percent in 2006. The budget forecasts a 6.3 percent rise in real GDP (10 percent rise in nominal), which would be the smallest economic expansion in Lithuania since 2002, and was below estimates by the Economist Intelligence Unit and IMF.

Lithuania's Ministry of Defense has kept up spending to support its overseas commitments and to make sure that donated equipment is employed effectively. Lithuania took over funding of the Ghor Province PRT from the United States beginning January 2007. As a result, Lithuania's 2007 budget for international operations was slated to reach 90 million litas (about USD 33 million), approaching Lithuania's informal limit for operations of ten percent of total defense spending. Much of the increase went to U.S. defense contractor Kellogg, Brown and Root, which the Lithuanians have contracted to provide support to the PRT at least until November 2007. Also, Lithuania has budgeted for upcoming training, shipping, fuel, spare parts and cryptography equipment for two minesweeper ships to be transferred under the DOD Excess Defense Articles program.

Lithuania's defense spending was not rising fast enough to meet some of its other needs. Defense noted the curtailment of training ambitions over the year 2006, including the cancellation of the Lithuanian Navy's participation in the BALTOPS multinational maritime exercise because of the lack of funds for fuel. Similarly, enrollment was steadily declining, due to lack of funding, at many of the courses provided by the Reconnaissance School. In other cases, the Lithuanian Armed Forces have acquired weapons systems, such as 120mm mortars, but have not funded the spare parts necessary for maintenance or the training required for crews. The defense budget shortfalls also had a negative effect on the planned modernization of logistics capabilities. As Lithuania worked to stand up a second deployable battalion task group by 2009, it will struggle at current funding levels to create the necessary combat service support structures to sustain such a unit in the field.

Despite its modest size, Lithuania continues to be a stalwart ally. At the same time, to meet NATO's need for interoperable, sustainable, and deployable forces, the Government needed to provide enough resources to ensure that its transformation and modernization needs are met -- which required more funding than has been forthcoming.

Lithuania began 2009 with a 31.2 billion LTL (about 13 billion USD) national budget (covering all ministries as well as national funds disbursed to municipalities). By July government cuts had decreased the budget to 29.4 billion LTL (12.25 billion USD). Without EU funds, the national budget would have shown a decrease from 25.7 billion LTL (10.8 billion USD) at the beginning of 2009 to 23 billion LTL (9.6 billion USD) in July.

The Ministry of Defense suffered from a greatly depleted budget, with projections for next year even worse. The ministry's budget was cut by 14 percent or 163.3 million LTL (68 million USD) since December, with air force programs reduced by 22 percent, land forces funding by seven percent, military operations by 8.5 percent and special operations forces funding by 12.5 percent. The initial 2009 defense budget of 1.2 billion LTL (485 million USD) was already a reduction in absolute terms of nearly 7 percent from 2008 (although it was a slightly higher percentage of GDP). In April 2009 the budget was revised down to 1.0 billion LTL (422 million USD), a real decrease of 19 percent from the 2008 budget; with that cut the defense budget now equals approximately 1 percent of GDP. The actual amount the ministry will receive by the end of the year was several million LTL lower than that projection.

Measures the ministry took to address the budget cuts included: canceling virtually all procurement that was not already under contract by the beginning of the year; negotiating extended payment and delivery plans for equipment already under contract; reducing the number of soldiers recruited during the year from a planning target of about 500 to an actual number of about 100; cutting officer and civilian pay; requiring all personnel to take two weeks of unpaid leave; non-renewal of service contracts for some officers; divestiture of several ministry-owned commercial companies deemed not directly related to military objectives; cutting training to a point where there is little beyond that required to certify troops for overseas missions; minimizing participation in international training events; minimizing foreign schooling for military personnel; reducing flying hours for pilots to conserve fuel and reduce aircraft maintenance costs; closing at least two foreign Defense Attache Offices; and ending a platoon-level deployment to Kosovo.

By 2010 the defense budget was adequate only for survival, and the ministry was struggling to maintain current capabilities, with little view to increasing competencies in the near future. The top priority is maintaining the Afghanistan mission, with the NATO Reaction Force and European Battle Group commitments just behind. Other priorities were maintaining host nation support for allies conducting the Baltic Air Policing mission, conducting air and maritime surveillance of Lithuanian territory, and maintaining search and rescue capabilities. The impact of the budget cuts was a derailed transformation process, an undermanned military, a declining readiness level, and reduced capability to deploy and sustain forces for international operations. If funding increases in 2011-2012 were not implemented, there will be long-term damage to readiness, as equipment and maintenance shortfalls get worse, and personnel, particularly in leadership positions, do not get the training and experience they need to face future challenges.

Appropriations of the Ministry of National Defence approved by the Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets of 20 December 2011 of the Seimas of the Republic of Lithuania amounts to LTL 870.2m, including assignations for the Lithuanian Riflemen’s Union, LTL 1.6m, and appropriations for subsidies for municipalities for the implementation of the mobilization function included into the budget of the Ministry of National Defence as of 2012 – LTL 1.0m. Appropriations for the Ministry of National Defence in 2012 amounts to 0.80 percent of GDP (GDP projection of November 2011 announced by the Ministry of Finance), or by 0.03 percent of GDP less than the appropriations of 2011 for the Ministry of National Defence (0.83 percent of GDP).

The major attention in 2012 is paid to further implementation of the Policy of Armed Defence of State. By the implementation of the activity priorities adopted by the Government of the Republic of Lithuania national defence capabilities will be enhanced through manning the reserve of the Lithuanian Armed Forces, instructing citizens for conducting defence of state, and modernizing the Lithuanian Armed Forces. The available financial resources will be used for acquiring weaponry, military equipment and mechanisms.

In the Agreement between the Lithuanian parliamentary parties regarding the defence policy for 2012-2016 of 08 May 2012, The parliamentary parties of Lithuania agreed that in order to ensure national security and defence and implement the State’s Armed Defence Concept and structural changes of the Lithuanian Armed Forces related to it, as well as honour our national and international commitments, the parliamentary parties agree that it is necessary to guarantee financing that meets the development plans of the national defence system and gradually increase annual allocations for the national defence system and pursue a long-term goal of 2% of GDP to be allocated to national defence.

Lithuanian Parliamentary Speaker Irena Degutiene said in September 2012 that the 2013 defense financing had yet to be determined, emphasizing that reduction of funding earmarked for defense purposes would violate the agreement signed in May among all main parties represented in the parliament. In her words, the current defense funding is insufficient, and Lithuania should follow the Estonian example and raise the financing of its defense sector. Asked to comment on media reports about plans to reduce defense funding from 0.8 to 0.75 percent of the gross domestic product (GDP) in next year's budget draft, Degutiene assured she had not had any reports about 2013 financing plans, as the budget draft was not yet discussed at the government.

On 30 October 2012 the newly elected government pledged to leave projected higher defense funding. Algirdas Butkevicius, leader of the Lithuanian Social Democratic Party, says that the new government will leave the 2013 defense budget projected by the outgoing Cabinet unchanged, i.e., 50 million litas (EUR 14.5m) higher than 2012 spending. According to the projected budget draft, the defense budget should be raised to 923.9 million litas next year, from this year's 870.2 million litas - about US$325 million [1 LTL = 0.375397 USD], which accounts for 0.79 percent of the gross domestic product (GDP).