Summary

Military expenditure is an indicator of the amount of economic resources devoted to military activities. In 1998 world military expenditure amounted to roughly $745 billion, which corresponds to $125 per capita on average for total world population. The economic burden of military activities is indicated by the share of gross national product (GNP) going into military expenditure. This share varies between countries and regions but taken as an average of world GNP it is 2.6%.

World military expenditure has been on a declining trend since 1987, which shows that this has been a period of disarmament but probably also to some extent of increasing efficiency in the use of resources for military purposes. The decline is an effect both of the end of the cold war and of the restrictive overall budgetary policies during part of this period. The reduction in world military expenditure since 1987 is more than one-third in real terms (after allowing for inflation). The sharpest cuts have been made in Russia but there have been strong reductions also in the United States, Latin America and Africa. The only region where there has been unabated rapid growth is Asia, where military expenditure has increased by 27% in real terms over the past decade.

During recent years the decline in military expenditure has slowed down. In 1997 there was a slight increase, and preliminary estimates for 1998 show a reduction of only 3.5%. This slow-down is likely to continue. The USA, which accounts for more than one-third of world military expenditure, presented a defence budget plan in 1998 which shows increased military expenditure during the next few years. The 1999 defence budget of the Russian Federation shows a planned nominal (including inflation) increase of 75% over actual 1998 expenditures, but it is far from clear whether this increase will be implemented. In previous years economic difficulties have led to actual expenditure being well below the adopted military budget. In Asia the previous strong growth in military expenditures has slowed down as a result of the 1997 financial crisis, but they have still not started to decline even in East Asia, which was most seriously affected by the crisis. While the volume of arms procurement has been scaled down significantly due to the reduced purchasing power of their currencies on the world arms market, the domestic burden of their military expenditure is not declining.

Most of the countries with a very high share of GNP devoted to military expenditure are located in Africa, a continent with many very poor countries and several ongoing armed conflicts. In 1998 UN Secretary-General Kofi Annan pleaded for the African countries to reduce their military expenditure to 1.5% of GDP. Latin America is the continent with the least transparency in military expenditure. It is difficult to obtain reliable military expenditure figures for these countries and thus to make proper assessments of their development. It is clear that the processes of democratization and reduction of conflict have led to reduced military expenditure, but the exact nature and size of these reductions are not clear.

Appendix 7A. Tables of military expenditure

ELISABETH SKÖNS, AGNÈS COURADES ALLEBECK, EVAMARIA LOOSE-WEINTRAUB AND PETTER STÅLENHEIM

Appendix 7A contains tables of military expenditure by region, country and income group.

Appendix 7B. Table of NATO military expenditure

Appendix 7C. Sources and methods for military expenditure data

Appendix 7D. The military expenditure of China, 1989-98

SHAOGUANG WANG

Summary

Chinese military expenditure is known to be higher than the official defence budget, but there is disagreement among China analysts as to how much higher it is. SIPRI has commissioned a study to identify and try to quantify the items of military expenditure outside the Chinese defence budget. These items include the People's Armed Police, military pensions, military research, development, testing and evaluation, subsidies to arms production, and arms imports, and, on the revenue side, earnings from PLA business activities and from arms exports, some of which are used for military purposes. The resulting estimate of Chinese military expenditure, which is an estimate at the high end, is roughly 75% higher than the official defence budget and amounts to 156 billion yuan for 1998. This corresponds to 1.9% of GDP rather than the official figure of 1.1%. This estimate is not expected to be the final answer on the size of Chinese military expenditure, but it is an important contribution to the exploration of real Chinese military expenditure.