Russia Forced to Reduce 2015 Defence Budget, Further Cuts Possible, IHS Says
Defence budget expected to fall in real terms for the first time since 2010
“As a result of the rapid growth in the Russian defence budget since 2010, resourcing for the State Armament Program to date has broadly been in line with expectations”
Faced with mounting fiscal pressures, the Russian government has formalized cuts to planned defence expenditure and further cuts are possible, according to new analysis from IHS (NYSE: IHS), the leading global source of critical information and insight.
Russia has reduced its defence budget for 2015 by 5.3 percent to $57.7 billion. Despite the downward revision defence expenditure remains 25.6 percent higher than in 2014, the IHS analysis says.
Russian officials, including President Vladimir Putin, have repeatedly stated that the modernisation of Russia’s armed forces will not be effected by any cuts to defence spending. However, elements of the State Armament Program appear increasingly likely to be delayed when the revised plan is formalised in late 2015.
“As a result of the rapid growth in the Russian defence budget since 2010, resourcing for the State Armament Program to date has broadly been in line with expectations,” said Craig Caffrey, senior defence budgets analyst -IHS Aerospace, Defence & Security.
“However, in order to meet the targeted level of spending by 2020, further growth of over 10 percent a year in the level of funding for the annual State Defence Order (SDO) would be required from 2016 onwards.”
While the large budget increase in 2015 should see the SDO remain on track in the short term, it remains to be seen whether growth can be sustained given Russia’s current fiscal challenges.
Assuming the modernisation of the Russian military continues to be prioritised by the government, the Ministry of Defence will probably have to divert funding from other areas of defence expenditure. “With military personnel numbers unlikely to be cut significantly, operating costs appear to be the most likely source of potential savings,” Caffrey said.
If the government’s three-year budget plan -- approved in December 2014 -- is adhered to, the defence budget will remain largely static at RUB3,113.2 billion in 2016 before increasing by a further 4.0 percent to RUB3,237.8 billion in 2017. Should these projections become a reality, defence expenditure will fall in real terms by around 6 percent in the two years following 2015. However, based on the current economic climate, this plan is also likely to be revised over the course of the next six months.
Further cuts to spending on the national economy, housing, security and law enforcement, education and sport sectors have also been made as part of the most recent revision. However, budgetary documentation continues to project a deficit of RUB2,936.6 billion, or around 4 percent of Gross Domestic Product.
Top Five Defence Budgets, Globally
Country 2015 ($mUSD)
1. United States 566,688
2. China 190,914
3. United Kingdom 60,900
4. Russian Federation 57,673
5. France 52,696
About IHS (www.ihs.com)
IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 150 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs about 8,800 people in 32 countries around the world.
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