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Russian 2014 Defense Budget

Moscow, a major player in the global arms business, has worked to re-equip and modernize its armed forces in recent years as well as boost its international sales. But 2014 was a turning point, with the drop in world oil prices, Western sanctions and limited manufacturing capacity may force Russia to slow those ambitions.

The Russian military budget will be reduced in 2016 by 5 percent due to the economic situation in the country. The 2016 military spending in the country was expected to amount to 3.14 trillion rubles (over $41 billion at the current exchange rate) or 4 percent of GDP. A 5-percent cut amounts to some 160 billion rubles. The Russian economy, highly dependent on energy exports, was experiencing a slowdown caused by a sharp decline in global oil prices and, to a lesser extent, by Western sanctions imposed on Moscow over its alleged role in the internal Ukrainian conflict — a claim the Kremlin repeatedly denied.

In 2015, the Russian military budget was reduced by almost 4 percent. Subsidies for the purchase of housing in 2014 were 26.5 billion rubles. In 2015, this article was allocated 37 billion rubles. In the new year 2016 it was planned to allocate 45 billion rubles.

In January 2016, the Ministry of Defense published a proposal for a comprehensive formation of its budget. It was envisaged to divide it into basic expenses in order to fulfill the tasks of military development in the near and distant future, and the cost of operational problems suddenly arise. At the suggestion of the Ministry of Defence of any curtailment costs of national defense should only be considered through the prism of a reliable state security. "We believe that any solution to reduce this or that article of the defense budget must be justified in the light of threats to national security and to obtain the approval of the Security Council. This decision was supported by the Russian president, "- said Deputy Defense Minister Tatyana.

Because of the crisis resulting from the sharp drop in energy prices and the economic sanctions of the West towards Russia budget execution in 2015 it was in jeopardy. Ministry of Defense of the Russian Federation even had to slightly reduce their costs.

In modern conditions when there is an urgent need for rapid and qualitative rearmament, the Defense Ministry was forced to advance businesses from 50% to 80% of the estimated amounts of the contracts for the supply of arms. Tatyana Shevtsova said that in 2016 the Defense Ministry will move to quarterly financing of the state defense order (SDO).

Nevertheless, some defense companies do not always comply with their obligations under the SDO. The Russian Defense Ministry was working with Federal Financial Monitoring Service, as a result, some companies have been identified misuse of budget funds. The funds could be spent on the production of other products not related to the SDO, to invest in securities, promissory notes, sent on loan servicing, etc. When allocated to the SDO means to an end, the company appealed to the Ministry of Defence for additional funding.

Russian Defense Ministry will have more than half of its spending in 2015 to fund a state-financed armament program, Deputy Defense Minister Tatiana Shevtsova said at a lecture delivered for students of St. Petersburg State Economic University on 22 Janury 2015. “This year the Defense Ministry will channel more than half of all expenditures to fund the state armament program,” Shevtsova said. Expenses on the defense industry will not be cut regardless the current economic situation, deputy chairman of the Military Industrial Commission board Oleg Bochkarev said. The state defense order will grow by more than 20% year on year in 2015 and by more than 40% in 2017, he said.

The Russian Defense Ministry intended to downplay the risks associated with the price difference due to changes in exchange rate. This was stated in an interview published 30 December 2014 in the newspaper "Izvestia", the Deputy Minister of Defense of Russia Yuri Borisov.

"We are very concerned about the situation with the growth of the dollar. We had planned to price options on state defense orders for 2015, 2016, 2017 in a stable economic situation, laying the purchase of imported components on the course of this summer," - said the deputy minister. The situation has changed and, according to him, if the government will not make the payment exchange losses, Defense Ministry "will have to either reduce the number of pieces of weapons, or give up some [personnel] positions."

According to Borisov, one of the main challenges is the strategic planning activities with wrong prediction of price parameters on the ten-year period. "The real inflation in the defense industry is higher than expected, including due to the fact that the forecast is calculated in civil industries, excluding especially the defense industry," - said the deputy minister.

State expenditures for the defense sector will not change regardless of the economic conditions in Russia, the military industrial commission board’s deputy head Oleg Bochkarev told TASS 19 December 2014. The state defense order market becomes more and more popular. It is guaranteed and confirmed with funds. Besides, the president has made it clear that defense expenditures would not change regardless of economic conditions, he said.

The volume of state defense orders for 2017 will grow more than 40% as compared to 2014, and in 2015 it will be 20% more, Bochkarev said. It has been growing continuously. It was 30% more in 2014 as compared to the previous year, Deputy Defence Minister Yuri Borisov said.

In early December 2014, Defense Minister Sergey Shoigu said that 25% more funds were provided from the budget in 2014 compared to last year for scientific research, tests, design work and purchases and repair of weapons and equipment. He also said that the number of weapons and equipment provided for troops grew 65%.

The cost of the State program of armament to the year 2025 would drop from 55 trillion to 30 trillion rubles through the development of strategic weapons and equipment types with similar characteristics, Defense Minister Sergei Shoigu said 19 December 2014 at the enlarged collegium session of the military. "The work has been completed on a type of perspective samples of weapons and equipment, have similar features and specifications. This will reduce the cost of State program of armament up to 2025, with 55 trillion to 30 trillion rubles, while maintaining the necessary amount of equipment," the report said. The cost of the State program of armament up to 2020 year is around 20 trillion rubles.

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Page last modified: 07-05-2018 12:10:03 ZULU