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Russian Military Budget

In 1988 military spending was a single line item in the state budget, totaling 21 billion rubles, or about US$33 billion. Given the size of the military establishment, however, the actual figure was at least ten times higher. Western experts concluded that the 21 billion ruble figure reflected only operations and maintenance costs. The amount spent on Soviet weapons research and development was an especially well-guarded state secret, and other military spending, including training, military construction, and arms production, was concealed within the budgets of all-union ministries and state committees. Apart from considerations of state secrecy, this allocation of military spending to ministries other than the Ministry of Defense reflected the Soviet approach to managing resource allocation. Weapons produced by agencies such as the Ministry of General Machinebuilding [missiles] or the Ministry of Shipbuilding Industry [ships] were essentially provided as "free goods" to the Ministry of Defense.

Since the mid-1980s, the Soviet Union devoted between 15 and 17 percent of its annual gross national product to military spending, according to United States government sources. Until the early 1980s, Soviet defense expenditures rose between 4 and 7 percent per year. Subsequently, they slowed as the yearly growth in Soviet GNP slipped to about 3 percent. In 1987 Gorbachev and other party officials discussed the extension of glasnost' to military affairs through the publication of a detailed Soviet defense budget. In early 1989, Gorbachev announced a military budget of 77.3 billion rubles, but Western authorities estimated the budget to be about twice that.

With the end of the Cold War, the combined military expenditure of Russia and other successor states of the USSR fell dramatically. in 1997 was around one-tenth of that of the USSR in 1988. Between 1988 and 1993 weapons production in Russia fell by at least 50% for virtually every major weapons system. Weapons spending in 1992 was approximately 75% less than in 1988. Almost all of Russia's arms production is for sales to foreign governments, and procurement of major end items by the Russian military had all but stopped.

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

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

The 1996 defense budget of the Russian Federation, ratified by the State Duma in December 1995, allotted 78.9 trillion rubles (about US$19 billion), of which about 16 percent, or 12.6 trillion rubles (about US$3.0 billion), was allocated to acquisitions, and 7.3 percent, or 5.8 trillion rubles (about US$1.4 billion), was earmarked for research and development (R&D). Russia's 1995 budget had allocated 10.2 percent to R&D and 21.2 percent to acquisitions. By comparison, the 1996 United States budget for the Department of Defense totaled US$249 billion, of which US$39 billion (15.7 percent) was designated for acquisitions and US$34 billion (13.7 percent) for R&D. In February 1996, the Security Council allocated between 50 and 54 trillion rubles (US$10 to US$11 billion) to fund additional state orders from the MIC, including money for accelerated R&D and production of advanced weapons systems. This supplementary, targeted allocation represented a significant increase over the allocations for 1994 (US$2 billion) and 1995 (about US$3.4 billion), indicating a possible redirection of resources to R&D even as the military operating budget remained flat.

As of 1997 Russia's defense budget was estimated to be about $65 billion annually, about 45 percent of the 1992 total. According to another estimate, military expenditure had fallen from an estimated $257 billion in the USSR in 1987 to $24.1 billion in Russia in 1997, and as a proportion of GNP from 16.6% in 1987 to 3.8% in 1997. Yet a third estimate placed total military expenditures at $41.7 billion. By any estimate, Russian military procurement had slowed to a crawl. Whereas about 1,200 tanks and infantry fighting vehicles were bought in 1992, only about 355 were acquired in 1997. Production of combat aircraft similarly fell from 170 in 1992 to 35 in 1997. Even so, Russia still has the largest military forces and defense budgets of any country in Europe and Eurasia.

Yeltsin made it clear in mid-1997 that military reform would be constrained by economic resources, and his decision was confirmed in the National Security Concept. Following Yeltsin's decision, concrete steps were taken to reform the armed forces within the severely retrenched defense budget under the leadership of Defense Minister Igor Sergeev. In accordance with the reform program, Russia planned to reduce the number of troops by 300,000 in 1998 in addition to the 200,000 it had cut in 1997. As a part of the organizational reform aimed at increasing efficiency and cutting military personnel, the Strategic Missile Force and the Military Space Force were integrated in 1997 and the Air Defense Force was merged with the Air Force in 1998.

The budget for the first three quarters of 1998 (January through September) was USD 7.00 billion or 50.6 billion new rubles (the average exchange rate for the first three quarters of 1998 was 1 USD equals 7.23 new rubles). Actual expenditures for this period were 4.66 USD or 33.7 billion, i.e. 66.5 percent of budget was fulfilled. For the first three quarters of 1998, actual military expenditures were 1.8 percent of overall GDP. The budgeted amount would have constituted 2.7 percent of GDP.

As opposed to the years 1996-97, the military's budget in 1998 was closed. An unofficial line-item defense budget is published on a monthly basis in Krasnaya Zvezda. This unofficial budget occasionally reflects discrepancies such as the receipt of less money by the Ministry of Defense than that which the Ministry of Finance announces as paid. Via this unofficial budget, the military demonstrates their accountability for what money is received, and documents their claim that they do not receive enough funds to be combat ready. On the other hand, the Finance Ministry and treasury have been unsuccessful in obtaining a detailed accounting of defense expenditures consistent with the budget. The Defense Ministry maintains the only federal government agency not yet included in the treasury's cash management system.

By the mid-1990s combat training had become virtually non-financed, with the military receiving only 6 percent of the resources required for combat training in 1998. Even this amount was apportioned only for maintaining infrastructure, forcing the military to finance fuel, ammunition, and training equipment costs from other sources. Training continues to be conducted on a reduced scale or is replaced by less resource-intensive activities (e.g., command post exercises replacing field tactical exercises). Personnel shortfalls, combined with lack of materiel, contributed to postponement or non-execution of unit training plans. In the ground forces, only 35 percent of planned regimental-level and 73 percent of battalion-level tactical exercises were conducted in 1998. Sea duty for Russian fleet submarines was reduced by 25 percent and for surface vessels by 33 percent. Russian air force elements executed between 15-40 percent of their standard training norms. This is contributing to rapid decay of combat readiness; according to MOD internal assessments, the average Russian soldier is only marginally combat capable.

As of 01 January 1999, the authorized peacetime strength of the Russian armed forces was to be 1.2 million, following massive personnel cuts and reduction of peacetime billets over the previous two years. Actual personnel strength was difficult to determine, due to lack of standardized counting methods and internal security procedures, which obscure strength figures. The actual strength of the Russian armed forces probably was between 1.4 and 1.6 million as of early 1999. Ministry of Defense (MOD) and press reports estimated actual personnel strength of the armed forces at 80-85 percent of the authorized peacetime manning levels.

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).

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