A Russian Tigr-M armored vehicle
A modified Tigr-M armored vehicle on display at a Russian arms expo, September 2013. Photo by Vitaly V. Kuzmin.

Russian Defense Spending: Tricky Math

April 26, 2017
Olga Oliker

Russian defense spending is a popular topic of conversation these days, as Russia flexes its military muscle in exercises at home and deployments abroad. Embedded in these conversations, however, is a good bit of confusion about how much Russia is spending, and what that money is buying. Anyone seeking to do cross-country budgetary comparisons would be well-served by understanding a handful of complicating factors. This explainer endeavors to lay out a few of the most important—namely, variations and inconsistencies in “input” costs, in calculating GDP and in what’s included in defense budgets and what isn’t.

First, every country’s economy is different. Costs of living, average salaries, costs of production and other things that play into what your dollar, euro or ruble buys vary from place to place. Maintaining a military force of 500,000 high-quality personnel in a country with lower salaries is obviously cheaper, in real terms, than maintaining one in a country with higher salaries. Various government subsidies and supports also distort prices and costs. Fluctuating exchange rates make these differences volatile over time, potentially even within the space of a year. As a result, comparisons between countries based on simply converting costs into a single currency, even one adjusted for inflation, can be misleading. Different approaches have been employed to mitigate this problem, many based on concepts of purchasing power parity. For example, in an effort to unpack the highly non-transparent defense budgeting of the USSR during the Cold War, analysts, including in the U.S. intelligence community, developed estimates based on the costs of producing the same weapons in the United States.

For purposes of simply assessing how much a country spends on defense in the context of its overall economy, a more common approach is to look at defense spending as a share of GDP; this presents its own problems. One of those is the question of how much of its defense spending a given country counts as part of its GDP. In Russia’s case, that recently changed; although the details of how are not entirely clear at the time of this writing, the resulting change in GDP figures reportedly ran into the tens of billions of dollars. Depending on the specifics (which may involve things like shifting costs from one year to another or simply including more military expenditures as outputs), such changes could, of course, also affect the calculation of share of defense in GDP.1

An even more basic problem lies in the question of what is included in a country’s defense budget and what is excluded, which affects not only the budget totals but budgets as a percent of GDP (or of government spending, another useful measure). In some cases, Russia’s choices are similar to those of other countries. For example, some portion of Russian nuclear weapons spending is included not in the Defense Ministry budget but in the budget of the State Atomic Corporation Rosatom.2 Similarly, a portion of United States spending on nuclear weapons appears in the Department of Energy budget. In Russia’s case, official defense budgets have also included different line items in different years—sometimes things count against the defense budget, sometimes they do not. Military pensions are a comparatively high-cost line item that was included in Russian defense budgets in the early and mid-1990s, but was later removed. Furthermore, different components of the defense budget have been classified at different times, and thus unavailable for analysis. This makes year-on-year comparisons a challenge, and comparisons with other countries all the more so.

Two sets of expenditures that Russia (and many other countries) does not include in defense budgets are spending on civil defense and paramilitary forces. In Russia’s case this includes border forces. These are relevant to this discussion because the Stockholm International Peace Research Institute (SIPRI), in its annual tracking of defense budgets, adds these costs into the estimate for Russia, creating a higher cost than that reported by the Russian government—generally 30-40% higher. (SIPRI’s estimate also adjusts a number of other factors.) The International Institute for Strategic Studies has also sometimes included these and other expenses, including pensions, in alternative estimates.3 Further complicating efforts to get a handle on the situation, Russia also reports defense expenditure data to the United Nations Office of Disarmament Affairs (UNODA). UNODA data collection is intended, in fact, to make comparison easier: Each country is asked to report costs in specific categories. Russia, however, consistently excludes some line items, such as nuclear weapons spending. Moreover, the figures provided do not always align with information in official budgets or other estimates.4

All of this is to say that understanding and using Russian defense budget figures is a complicated undertaking. As a result, there is much room to get things wrong and draw erroneous conclusions. At a time of such great attention to Russia and its military, such mistakes can be dangerous. I therefore urge two things. One is that those who have the freedom to set research agendas recognize this gap, and support work that allows for creative, effective approaches to improving our understanding of the ways Russia’s defense rubles do and do not translate into capabilities. The other is that, in the meantime, those who seek to use the figures currently available should be careful in choosing their data and make sure that it really matches their needs. If one aims to measure trends in spending, looking at a few different estimates is wise, particularly if different estimates result in different trend lines. If one hopes to make comparisons between states, one can either seek to establish one’s own estimates, to ensure comparability, or default to the official budget (converted to constant currency or as a share of GDP). The latter approach is inherently imperfect and should be caveated, since each state decides what to include, and what not to include, and few states’ categories match perfectly. However, for large-scale comparisons, it may be the only viable approach. Finally, if one truly wants to understand what Russia is spending on specific programs, one is best off investigating those programs one by one.

Footnotes

  1. Thanks to Keith Crane for his insights on this point. See also this analysis of the Russian economy, including a mention of the  reclassification of military spending.
  2. Until 2007 nuclear weapons spending was in the budget of the Federal Atomic Energy Agency and before that, until 2004, of the Ministry for Atomic Energy; this reflects reorganizations of Russia's government agencies more than changes in budgets, however.
  3. Russia,” The Military Balance 105, No. 1 (Jan. 1, 2005): 151-172.
  4. For more discussion of these issues see: Julian Cooper, “Appendix 4E. Russian Military Expenditure and Arms Production,” in SIPRI Yearbook 2001 (Stockholm: Stockholm International Peace Research Institute, 2001), 313-314; Julian Cooper, “Appendix 6D. The Military Expenditure of the USSR and the Russian Federation, 1987-97,” in SIPRI Yearbook 1998, vol. 29 (Stockholm: Stockholm International Peace Research Institute, 1998), 243-261; Vasily Zatsepin, “Russian Military Expenditures: What’s Behind the Curtain?,” 2007; Julian Cooper, “Russian Military Expenditure: Data, Analysis and Issues” (Stockholm: FOI Swedish Defense Research Agency, September 2013).
Author

Olga Oliker

Olga Oliker is the director of the Russia and Eurasia Program at the Center for Strategic and International Studies.

Photo by Vitaly V. Kuzmin, shared under a Creative Commons Attribution-Share Alike 4.0 International license.