Russian Military 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).
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.
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.
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.
After nearly a decade of declining activity, the Russian military began to exercise its forces in mission areas it believed were essential for deterrence, global reach and rapid reaction. Open source reporting confirmed that ground force exercise activity in 2003 doubled that of 2002; training for use of non-strategic nuclear forces continued; and Russia desired to have the ability for its Navy and Air Force to operate globally, as evidenced in their joint exercises in the Indian and Pacific Oceans in 2003.
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.
In the new millenium, the Russian economy remained very dependent on energy and other extractive sectors, such as timber, precious metals, non-ferrous metals and steel. In 2005 the Russian economy continued its sustained steady growth. GDP grew by an estimated 6.4% to $765.5 billion. However, this represented a decline from 7.1% growth in 2004. As in 2004, high world prices for oil and natural gas continue to be the engine behind much of this impressive growth.
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 continued 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.
By 2006 Russia spent about 2.7 percent of its GDP on defense, about that of advanced European countries. Military leaderss protested that this was far too little to achieve foreign policy professed goals, while civilian leaders resisted militarizing the federal budget or economy as in Soviet times.
Russia's military budget for 2006 rose to approximately 578 billion rubles, or US$22.3 billion. This number is equivalent to a 23.8% increase from the 2005 budget, which totalled US$18 billion. Nearly a quarter of the funds were dedicated towards health services, education, and housing of military personnel. The main allocation of resources, however, was devoted to the purchasing of arms and equipment and research and development. In fact, 237 billion rubles (US$ 8.8 billion) was set aside for attaining military arms and equipment in 2006, as compared with 183 billion rubles (US$ 6.7 billion) the previous year. Furthermore, in response to the United States planned strategy to implement a new missile system in Poland and Czechoslovakia, Russia countered and assigned a further 54 billion rubles (US$ 2 billion) to augment the nation's missile defense and air defense systems.
The most substantial policy decision concerning the immediate future of the Russian military came at a meeting of the Military Industrial Commission on 2 June, 2006. During that meeting a new state armaments program, which will span 2007-2015, was agreed upon for an estimated 4.9 trillion rubles (US$186 billion). 63% is to be allocated for the procurement of modern weapons and euipment and 27% towards defense research and development.Russia ended 2006 with its eighth straight year of economic growth, averaging 6.7% annually since the financial crisis of 1998, while inflation was below 10% for the first time in the past 10 years. Although high oil prices and a relatively cheap ruble initially drove this growth, since 2003 consumer demand and, more recently, investment have played a significant role. The federal budget had run surpluses since 2001 and ended 2006 with a surplus of 9% of GDP. According to 2006 estimates, Russia's official GDP was $1.746 trillion (purchasing power parity) and $733.6 billion (official exchange rate), compared to the US GDP of $13 trillion.
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