The recent reports of a 20 or 25 percent drop in funding for the Russian military are based on faulty calculations
One can only observe with bemusement the growth in size, readiness and modernization of Russia’s armed forces when juxtaposed against recent news stories reporting a 20-percent decline in Russian defense spending from 2016 to 2017, described as the first notable cut since 1998.
It is seemingly impossible for both trends to be real. Indeed, Russian defense spending is alive and well, with cuts limited to single digits. The announcement about its steep decline by the Stockholm International Peace Research Institute, or SIPRI, was erroneous.
Changes in Russia’s handling of defense funding have led SIPRI and, before it, IHS Jane’s Defense Weekly to misreport the reduction. Now, for the second time in as many years, the miscalculation is proliferating across major media outlets.
The main source of the error is readily identifiable, arcane though it may be: In 2016 the Russian government started paying off defense-sector debt that had piled up over the years, which created the illusion of much higher spending on national defense and, accordingly, a subsequent decline the following year.
After the government decided to pay down the debt, the Finance Ministry provided 792 billion rubles for this purpose, a figure that seemed to boost 2016 defense spending from its actual 3.09 trillion rubles to 3.8 trillion.(Subsequently another 186 billion rubles was spent in 2017 on paying down debt, making the spending appear higher for that year as well.) According to the MoD, this measure saved 130 billion rubles in interest alone.
Another change disrupting the continuity of Russian defense-spending data, adopted by the government in 2017, was to tighten up controls on funding left over in the hands of the defense sector when it was unable to deliver weapons on time. Prior to this, the defense industry was allowed to build up stockpiles of money advanced for armaments that had not been produced as scheduled.
Furthermore, some defense enterprises were clever enough to collect interest on these large advances, which sat in their accounts. At the end of the year, about 250-300 billion rubles ended up trapped in this manner, and the MoD had a hard choice to make: either further finance incomplete orders, and therefore reward delinquency, or return the money to the government budget and potentially lose it.
To solve the matter, the MoD will now pull unspent funding back to the government budget under the condition that it will be reissued, and roll over payments into the following year. This means that some portion of each year’s budget (perhaps 5 percent or so) will flow into the next year.
While we are in fact witnessing a steady decline of Russian defense spending as a percentage of GDP, defense cuts in absolute terms have been modest at best. Official spending on defense dropped by about 8 percent from 2016 to 2017, from 3.09 trillion rubles to 2.84 trillion, and the defense budget was only scheduled for cuts averaging 5-6 percent over the three-year period of 2017-2019. (The numbers in this article reflect official defense spending, not total military expenditure, which might include funding for other militarized services like the border guards and Interior Ministry troops, or military pensions, which could add another trillion rubles to the bottom line.)
Actual reductions in military spending began in 2015, by about 5 percent.Economic factors certainly played a role—primarily Russia’s recession and the drop in oil prices—but perhaps more important were the geopolitical factors: loss of access to certain defense articles imported from the West and the messy divorce from Ukraine’s defense sector. Due to the war with Ukraine, Russia’s defense industry could not buy components from its long-time partner across the border; this, in turn, delayed production and left the Russian Defense Ministry with less materiel to buy, while the funds to pay for it sat in government coffers instead of getting spent.
Russia’s defense expenditures are not a coherent data set and have become easy to get lost in given the changes that have taken place. Nonetheless, it is especially frustrating to see the narrative of “slashed military spending due to economic woes” resurface now, since the same miscalculation was made last year by Jane’s, which reported a 25-percent reduction in Russian defense spending from 2016 to 2017 based on Moscow’s advance announcement of planned expenditures. Jane’s later acknowledged the mistake and took down its original story, but by that time the sensational figure had already been reported widely in the news media.
Although it is impossible to know in advance how much will be spent in 2018, it is already looking like this year’s anticipated 5 percent reduction is unlikely to materialize. Instead of the planned 2.768 trillion rubles, the Russian budget’s defense chapter has already been amended to 2.953, a 6.7-percent increase; this higher 2018 figure likely includes carryover payments for armament procurement in 2017. Hence defense spending in 2018 is unlikely to decline, but the Russian leadership still intends to see military expenditure reduced as a share of GDP. Planned spending on national defense was envisioned at 2.815 trillion for 2019 and 2.807 trillion for 2020—also hardly a steep cut, and current performance suggests actual numbers will prove higher.
Thus, Russian defense spending and procurement is in for a sustained trim, but the reductions are fairly minor in comparison to the sensational headlines. Moscow has long declared its intentions to halt the growth in defense spending and reduce military expenditure as a share of GDP over time. Given the complexity of Russia’s defense budget, and a data set that lacks continuity, the best thing one can do is tread with care when it comes to pronouncements.
Source: Russia Military Analysis