Sources and methods for SIPRI military expenditure data

The SIPRI database on military expenditure currently covers data for 171 countries. Data for the 10-year period 2000-2009 are presented in the SIPRI Yearbook 2010. Consistent data are available from 1988 in the SIPRI military expenditure database on line. The data series are not always consistent with the data for 1950-87, as published in previous SIPRI Yearbooks. The data are subject to continuous revisions and these revisions can be extensive. Significant changes are made to previously estimated figures. Entire series are revised when new and better sources come to light. As a result, there is sometimes considerable variation between data sets for individual countries in different Yearbooks. Conversion to constant US dollars has been made by the use of market exchange rates (MERs) for all countries (for details, see section VI and SIPRI Yearbook 2010, appendix 5A).

The main purpose of the data on military expenditure is to provide an easily identifiable measure of the scale of resources absorbed by the military. Military expenditure is an input measure which is not directly related to the 'output' of military activities, such as military capability or military security. Long-term trends in military expenditure and sudden changes in trend may be signs of a change in military output, but such interpretations should be made with caution.

Military expenditure data measured in constant dollars are a trend indicator of the volume of resources used for military activities, which allow comparisons to be made over time for individual countries and between countries. The share of gross domestic product (GDP) is a rough indicator of the proportion of national resources used for military activities, and therefore of the economic burden imposed on the national economy.

The sources for military expenditure data are, in order of priority: (a) primary sources, that is, official data provided by national governments, either in their official publications or in response to questionnaires; (b) secondary sources which quote primary data; and (c) other secondary sources.

The first category consists of national budget documents, defence white papers and public finance statistics published by ministries of finance and of defence, central banks and national statistical offices. It also includes government responses to questionnaires about military expenditure sent out by SIPRI, the United Nations or the Organization for Security and Co-operation in Europe (OSCE).

The second category includes international statistics, such as those produced by NATO and the International Monetary Fund (IMF). Data for most NATO countries are taken from NATO defence expenditure statistics as published in a number of NATO sources. Data for many developing countries are taken from the IMF's Government Financial Statistics Yearbook, which provides a defence line for most of its member countries. This category also includes the publications of other organizations which provide proper references to the primary sources used. The three main sources in this category are the Europa Yearbook (Europa Publications Ltd, London), Country Reports of the Economist Intelligence Unit (London), and Country Reports by IMF staff.

The third category of sources consists of specialist journals and newspapers.

Although the lack of sufficiently detailed data makes it difficult to apply a common definition of military expenditure on a worldwide basis, SIPRI has adopted a definition as a guideline. Where possible, SIPRI military expenditure data include all current and capital expenditure on: (a) the armed forces, including peacekeeping forces; (b) defence ministries and other government agencies engaged in defence projects; (c) paramilitary forces, when judged to be trained and equipped for military operations; and (d) military space activities. Such expenditures should include: (a) military and civil personnel, including retirement pensions of military personnel and social services for personnel; (b) operations and maintenance; (c) procurement; (d) military research and development; and (e) military aid (in the military expenditure of the donor country). Civil defence and current expenditures on previous military activities, such as veterans' benefits, demobilization, conversion and weapon destruction are excluded.

In practice it is not possible to apply this definition for all countries, since this would require much more detailed information than is available about what is included in military budgets and off-budget military expenditure items. In many cases SIPRI cannot make independent estimates but is confined to using the national data provided. Priority is then given to the choice of a uniform definition over time for each country in order to achieve consistency over time, rather than to adjusting the figures for single years according to a common definition. In cases where it is impossible to use the same source and definition for all years, the percentage change between years in the deviant source is applied to the existing series in order to make the trend as accurate as possible. In the light of these difficulties, military expenditure data are not suitable for close comparison between individual countries and are more appropriately used for comparisons over time. To see a structured breakdown of the SIPRI military expenditure definition please go here

Estimates and the use of brackets

SIPRI data reflects the official data reported by governments. As a general rule, SIPRI takes national data to be accurate until there is convincing information to the contrary. Estimates are made primarily when the coverage of official data does not correspond to the SIPRI definition or when there are no consistent time series available. In the first case, estimates are made on the basis of an analysis of official government budget and expenditure accounts. The most comprehensive estimates, for China and Russia, have been presented in detail in previous Yearbooks. In the second case, differing time series are linked together. In order not to introduce assumptions into the military expenditure statistics, estimates are always based on empirical evidence and never based on assumptions nor extrapolations. Thus, no estimates are made for countries which do not release any official data. These countries are displayed without figures.

SIPRI estimates are presented in square brackets in the tables. Round brackets are used when data are uncertain for other reasons, such as the reliability of the source or because of the economic context. Figures are more unreliable when inflation is rapid and unpredictable. Supplementary allocations made during the course of the year to cover losses in purchasing power often go unreported and recent military expenditure can appear to be falling in real terms when it is in fact increasing.

Data for the most recent years include two types of estimate which apply to all countries: (a) figures for the most recent years are for adopted budgets, budget estimates or revised estimates, and are revised, more often than not, in subsequent years; and (b) the deflator used for the latest year in the series is an estimate. Unless exceptional uncertainty is involved with these estimates, they are not bracketed.

In its estimates of Chinese military expenditure, SIPRI seeks to take into account a number of sources of military expenditure outside the official defence budget. Such sources of military expenditure include funding from other central government ministries (some of which is publicly available, some of which is not), funding from local government and funding from internal People's Liberation Army (PLA) sources—the latter probably represents a much smaller share of the total than in the past. SIPRI's estimate of China's military spending is based on a methodology used in a study published in SIPRI Yearbook 1999, which provides estimates of Chinese military spending from 1989 to 1998, based on both the official defence budget and data and estimates for a number of items outside the budget (see below). [1] Since then, SIPRI has produced estimates for Chinese military spending assuming, in most cases, a rate of change in these additional items equal to that of the official budget, with two exceptions. First, the earnings of the PLA from its commercial activities are assumed to have declined steadily since 1999, as a policy of divestment from such activities has been followed. Second, the rate of change in spending on arms imports and in PLA earnings from arms exports are assumed to have followed the rate of change of China's arms imports and exports as measured by the SIPRI Trend Indicator Value (TIV).

For the current editions of the SIPRI Yearbook and in the SIPRI Military Expenditure Database, SIPRI has updated its estimates for China for the years 1997–2009 using additional data from various editions of the China Public Finance Yearbook and the China Statistical Yearbook. This has allowed previous estimates of some elements of the total figure for Chinese military spending to be replaced with actual expenditure data and some other estimates to be improved. However, the previous methodology, in terms of the items included in the total and the approach to estimating those items for which actual expenditure data is not available, remains unchanged. This exercise has resulted in surprisingly small changes in the total estimate for Chinese military spending; for each year, the change is less than 1 per cent of the total, in most years much less. This reflects increases in figures for some items compared to previous estimates, but decreases in others.

The items outside the official defence budget that are included in the estimate are: (a) spending on the paramilitary People's Armed Police (PAP); (b) soldiers' demobilization and retirement payments from the Ministry of Civil Affairs; (c) subsidies to the arms industry; (d) additional military research and development (R&D) funding by civilian government ministries; (e) additional military construction expenses; (f) Chinese arms imports; (g) a share of revenue from Chinese arms exports; and (h) residual military-owned enterprises. Estimates for items d, f, g and h are unchanged; estimates for items a and b have been updated with actual expenditure figures (with estimates for recent years based on the rate of change of the official budget); estimates for item c— subsidies to the arms industry—have been updated based on a share of the total budget for industrial subsidies (with further estimates for 2007–2009 based on the average rate of decline of this figure in previous years); and estimates for item e—additional military construction—have been updated based on a share of the government's capital infrastructure budget (with further estimates for 2007–2009 based on the rate of change of the official defence budget).

The resulting SIPRI estimates for Chinese military spending come to roughly 1.4–1.5 times the official defence budget for most years. SIPRI's current estimate for R&D spending is quite high, suggesting a share of R&D in overall military spending close to that of the USA, and considerably higher than for major European arms producers. In contrast, SIPRI estimates do not at present include estimates for local government funding of the PLA.

A 2006 report by the US–China Policy Foundation, based on a analysis of available Chinese-language sources, broadly concurs with the list of items included by SIPRI, but also adds various forms of funding to the PLA from local government, as well as some higher education expenses for PLA officers and compensation for disaster relief activities. The report concludes, however, that there is not at present enough information to make a reasonable estimate of total Chinese defence-related spending.

While details of some elements of Chinese military spending outside the official defence budget are publicly available (such as the PAP budget) others—most importantly R&D spending—are not, and can at present only be the subject of educated guesswork. Further research based on publicly available Chinese-language sources could provide improved estimates, but without greater transparency on the part of the Chinese Government, a completely accurate figure is not currently possible.

The SIPRI military expenditure figures are presented on a calendar-year basis. The only exception is the USA, for which statistics report data on a fiscal-year basis. Calendar-year data are calculated on the assumption of an even rate of expenditure throughout the fiscal year.

The deflator used for conversion from current to constant prices is the consumer price index (CPI) of the country concerned. This choice of deflator is linked to the purpose of the SIPRI data – that they should be an indicator of resource use on an opportunity cost basis.

Average market exchange rates (MER) for the relevant year are used to convert local currency figures into US dollars. For the constant dollar figures, this means the MER for the base year (currently 2008), while for the current dollar figures given for the most recent year's data, this means the MER for that year (currently 2009). Market exchange rates are determined by the supply and demand of currencies used in international transactions, and as such do not always accurately reflect differences in price levels between countries.

An alternative is to use GDP-based purchasing power parity (PPP) conversion factors (or PPP exchange rates). The PPP dollar rate of a country's currency is defined by the World Bank as 'the number of units of a country's currency required to buy the same amount of goods and services in the domestic market as a U.S. dollar would buy in the United States' [2]. Such GDP-based PPP rates are designed to control for differences in price levels and thus to provide a measure of the real purchasing power of the GDP of each country.

Using GDP-based PPP rates instead of MERs for currency conversion results in much higher output and expenditure figures for many developing countries. For example, while the ratio of US to Chinese military expenditure in 2009 was 6.6:1 based on MER, using PPP rates the ratio was only 3.2:1. However, the reliability of such PPP rates is lower than for MERs, since PPP rates are statistical estimates, calculated on the basis of collected price data for a basket of goods and services for benchmark years. Like all statistical estimates they are subject to a margin of error.

Furthermore, GDP-based PPP rates are of limited relevance for the conversion of military expenditure data into US dollars. Such PPP rates are designed to reflect the purchasing power for goods and services that are representative of spending patterns in each country, that is, primarily for civilian goods and services. Military expenditure is used to purchase a number of goods and services which are not typical of national spending patterns. For example, the price of conscripts can be assumed to be lower than the price of a typical basket of goods and services, while the prices of advanced weapon systems and of their maintenance and repair services can be assumed to be much higher. Due to these uncertainties, SIPRI uses market exchange rates to convert military expenditure data into US dollars, despite their limitations.

The choice of base year (the year in whose prices the data are expressed) also has a significant impact on cross-country comparisons of expenditure data because different national currencies vary against the dollar in different ways. Beginning with the data in the SIPRI Yearbook 2010, the base year has been changed to 2008, having previously been 2005. The most salient effect of this change is a substantial increase in the constant dollar figures for most countries, due to the decline of the value of the dollar against other currencies. This is most marked in Western Europe, with the Euro in particular rising substantially against the dollar between 2005 and 2008. By contrast, the rise in the dollar in 2009 has led to many countries' current (2009) US$ military expenditure figures for 2009 being lower than the constant (2008) US$ figures for the same year.

The ratio of military expenditure to GDP is calculated in domestic currency at current prices and for calendar years.

Economic groupings used are based on figures for 2008 Gross National Income (GNI) per capita as calculated by the World Bank and presented in its World Development Report 2010. For the purpose of calculating aggregate totals, estimates have been made for countries for which data are lacking in some years. These estimates are made on the assumption that the trend for these countries is the same as for the geographical region in which they are located.

For information on countries included in the geographical regions see Regional coverage.

[1]Wang, S., 'The military expenditure of China, 1989–98', SIPRI Yearbook 1999.

[2] World Bank, World Development Report 2010: development and climate change (World Bank: Washington, DC, 2009), p377.