The independent resource on global security

Monitoring military expenditure

Coins with shadow of military tank
Dr Sam Perlo-Freeman, Senior Researcher (currently on leave of absence), Arms production, international arms transfers and military expenditure programme

Today the SIPRI Military Expenditure Database covers 173 countries and contains consistent data going back to the 1950s for some countries. SIPRI provides the only long-term, historically consistent series of military expenditure data with global coverage available today. This topical backgrounder looks at how and why SIPRI invests time in this endeavour.

 

Defining military expenditure

There is no generally agreed definition of military expenditure worldwide. SIPRI’s approach is to try to include all costs incurred as a result of current military forces and activities in the definition. This includes spending that may not support a direct front-line military activity, but which is nonetheless a necessary part of maintaining a functioning military force. It frequently includes spending that is not in a country’s main defence budget.

The main categories of spending in the SIPRI definition are

  • personnel expenditure: salaries and benefits of military and civilian defence personnel;
  • operations and maintenance expenditure: running costs such as fuel, repair and maintenance, travel, general supplies, rent, utilities and payments for services;
  • procurement: expenditure for military equipment;
  • research and development (R&D): expenditure for developing new weapon systems and technologies;
  • construction: expenditure for military bases and other military infrastructure; and
  • other smaller categories such as military aid to other countries.

 

A common error in media reporting is to refer to military spending as arms spending, when in fact only procurement and R&D spending should be described as such. Most military spending in essentially all countries consists of expenditure on personnel and operations and maintenance.

SIPRI includes two areas of spending that are not always considered military expenditure by national governments or other sources. The first is military pension payments. It is sometimes argued that these should not be considered military spending, as they do not contribute to military capability. However, they are a crucial part of the package of benefits given to soldiers and officers, without which it would not be possible to maintain a functioning armed force.

The second area is expenditure on paramilitary forces, where these are trained, equipped and available for military operations. Paramilitary forces are heavily armed police or internal security forces that also have a dual military role. Examples include gendarmerie forces, border and coast guards, and interior ministry troops. Such forces typically have military structures and ranks, and are often under the authority of the Ministry of Defence. While their primary duties are civil, they can typically be called on to join the regular armed forces in the event of war. Some such forces are currently active in civil conflicts. Gendarmerie forces may act as military police and guard sites of national importance such as embassies and nuclear installations. SIPRI does not include all paramilitary forces in military spending, but does if a clear dual military role can be identified.

This description represents in some sense an ‘ideal’ definition of military expenditure; in practice it is not possible to apply it to all countries, since this would require much more detailed information than is available about military budgets and off-budget military expenditure. While in many cases military spending can be identified outside the main defence budget (such as separate military pension funds), and in other cases reasonable estimates of such additional elements can be made, sometimes it is simply a case of ‘take what you can get’ in terms of the information published by national governments. The most important criterion in all cases is to obtain a data series that is consistent over time for each country, even if it does not correspond exactly to the SIPRI definition.

Other organizations and countries use varying definitions of military expenditure. Media reports on military expenditure, including in specialist publications, tend to report simply the defence budget of the country in question, although many countries have significant military expenditure in other budget lines. The International Monetary Fund’s Government Financial Statistics (GFS) collects expenditure data according to a functional classification, based on the Classification of the Functions of Government (COFOG). The COFOG places military pensions within the social security function and military healthcare within the health function, in contrast to the SIPRI definition, which includes them as part of military expenditure. Likewise, many countries report military expenditure according to a functional definition, whether this is based on the COFOG or a national categorization of the functions of government.

The NATO definition of military expenditure is similar to the SIPRI definition; however, NATO changed its definition in 2004 to exclude expenditure on paramilitary forces if they are not ‘realistically deployable’.

 

Why measure military expenditure?

A wide variety of people are interested in military expenditure data, including governments, diplomats, academic researchers and students, non-governmental organizations, international organizations such as the World Bank and International Monetary Fund, journalists and members of the public. Military expenditure data has a variety of purposes, including to

  • assess the economic burden of a country’s military forces on its economy;
  • assess a government’s priorities, possibly by comparing spending on the military with spending on other sectors such as health and education, and changes in their relative levels over time;
  • assess a country’s orientation as relatively peaceful or ‘militaristic’ (with caution needed in such an assessment, as this also depends on a country’s security situation), or as a measure of how a country views the various security threats and challenges it may face, e.g. rapid increases in military expenditure over a short period may be a warning sign of possible internal or external conflict, although the connection is far from direct;
  • give a rough indication of the relative level of military capability or power of different countries, although such use is rather problematic as there is no direct relationship between military expenditure (an input measure) and military capability or power (output measures); and
  • conduct statistical research relating military expenditure across countries or over time to other economic, political and security variables. Such research may include
    • the impact of military expenditure on economic growth and development, or on other economic variables such as international debt or corruption;
    • the existence (or not) of ‘trade-offs’ between spending on the military and other areas such as health and education;
    • the determinants of military expenditure, such as a country’s economic wealth, armed conflict, political systems and the military expenditure of neighbours and rivals; and
    • the effect of military expenditure (along with other variables) on the risk of armed conflict.

 

SIPRI regards military expenditure primarily as a measure of the economic resources devoted to the military.

 

The reliability of military expenditure data

Nowadays, the great majority of countries make available at least basic military budget information, in many cases over the Internet as well as in printed official documents. However, there are a few countries in the SIPRI Military Expenditure Database that, at present, make no data available at all. For the current data, which includes military expenditure up to and including 2015, Djibouti, Eritrea, Qatar, Sudan, Turkmenistan and Uzbekistan have not provided any data for at least five years.

Yet even when military expenditure data is published by a national government, the data may be subject to several problems that limit international comparability and a proper understanding of the economic burden of the military on the country.

First, there is the problem of different definitions of military expenditure in different countries, as discussed above. While SIPRI always seeks data as close as possible to the SIPRI definition, and uses additional sources of data to the main published defence budget where possible, this is not always available. Second, there is the problem of currency conversion (see FAQs).

In addition to these, there are numerous issues related to the reliability, transparency and comprehensiveness of military expenditure data. These issues were explored in a number of case studies of African countries conducted by SIPRI (see Budgeting for the military sector in Africa), but many of them also apply to other countries.

Reliability. In some countries, especially poorer countries with limited state capacity, there may be weak systems for financial monitoring and control in the military sector and elsewhere. Actual levels of military expenditure may be incompletely recorded, or actively falsified due to corruption or for other reasons. Some governments may also seek to disguise the true level of military expenditure, for example, for the benefit of donor countries and institutions. Poor financial discipline may allow ministries or armed services to overspend their budgets without sanction. In a number of cases, only budgeted expenditure figures for the military may be available, rather than actual expenditure, which may be substantially different.

Transparency. Many countries provide only limited information on military expenditure, such as just a headline defence budget figure. This makes it hard to know what is or is not included in military expenditure figures, whether definitions have changed over time and whether figures are for actual or budgeted expenditure. Lack of transparency and detail may also call into question the reliability of the data provided.

Comprehensiveness. In many countries, published military expenditure figures systematically exclude significant items of military expenditure. In some cases, this is due to a difference of definition, such as the exclusion of military pensions (for which figures may or may not be available elsewhere). In other cases, military expenditure may be funded from a number of extra-budgetary or off-budget sources. Many countries exclude expenditure on arms imports from their military expenditure figures for example. This is the case in China, the world’s second-largest military spender.

Extra-budgetary military expenditure is spending financed from other lines within the overall state budget. In Russia, some spending on military research and development is financed through the budget for science and technology, with precise figures for how much of this is military-related unavailable.

Off-budget spending is sources of revenue for the military outside the regular state budget. Frequently, arms imports, and sometimes other military spending, are financed from dedicated accounts for natural resource revenues. Chile has a dedicated fund for arms imports funded by 10% of the annual revenues of the state copper company, Codelco (a rare case where the amount of the off-budget revenue for the military is publicly available). Since 2011, successive governments have sought to replace this off-budget funding stream with a more regular and transparent means of funding military acquisitions, but at the time of writing this process has not yet reached a conclusion. Another common source of off-budget revenue is military-run business activities, as seen in Indonesia.

Wherever possible, SIPRI seeks to find information on extra-budgetary and off-budget sources of military spending, or make estimates where precise figures are not available. In the case of China, for example, SIPRI makes annual estimates based on a detailed methodology developed by a Chinese expert. However, in many cases the missing expenditure is not available in any public source, and is not susceptible to a reasonable estimate.

As far as possible, SIPRI documents possible known omissions and uncertainties in military expenditure data for each country in the footnotes to the military expenditure tables provided online and in the SIPRI Yearbook. Further information on issues relating to military expenditure data for individual countries is available on request.

 

Military expenditure and military capability

While there may be other political or economic motivations, the primary reason countries spend money on the military is to acquire military capability. However, extreme caution should be exercised in drawing a link between a country’s level of military expenditure and its degree of military power or military capability, as there are many other factors that contribute to military capability, and many intervening factors affecting the degree to which military expenditure succeeds in buying military capability.

First, it should be recognized that military expenditure is a flow measure—that is, a measure of current resources devoted to renewing, replacing and expanding military capability. It therefore does not measure the acquired stock of capabilities represented both by previous stocks of equipment, and by accumulated knowledge, experience, infrastructure, organization and doctrines (or lack thereof) within the military establishment. For example, when Russian military expenditure plummeted following the collapse of the Soviet Union in 1991, Russia retained the Soviet Union’s nuclear arsenal and much of its stock of conventional weapons. Of course, as such equipment has aged, this may well have led to a commensurate drop in Russia’s military capability.

Second, the value of military expenditure in creating military capability will vary enormously from country to country. An important factor will be whether the mixture of military expenditure between, for example, personnel and equipment expenditure, is appropriate for the types of military task desired by a country. Many countries have sought to reduce the size of their armed forces since the end of the cold war, seeking to create a smaller but better trained and equipped force suitable for engaging in modern armed conflicts. Conversely, if a country has high levels of military spending, but most of this goes towards maintaining an excessively large army, this spending may not translate into particularly meaningful military capability.

A third factor is the efficiency of military expenditure—this may be adversely affected by corruption, poor management and organization of forces, or poor planning and execution of equipment projects. A fourth factor is a country’s technological absorption capability—large sums of money spent on major high-technology equipment may be of little value if a country lacks the trained personnel, military organization and doctrine to effectively use it.

Fifth, and finally, a country’s military capability will also depend on factors that may be hard to measure in financial terms, such as morale, military preparedness, combat experience, doctrine and organization. Even more so, a country’s military power—its ability to use its military capability to achieve desired political goals—will depend on a whole range of other political, geographical and economic factors, such as the overall economic and industrial strength of the country, the size of the country in terms of borders and coastlines to be defended, the terrain in which armed forces may be expected to operate, the quality of communications between different areas of operation, the strength of the country’s potential adversaries and alliances with other countries, and the country’s position within the international community.

A country with an annual military expenditure of $50 billion would almost certainly have considerably more military capability than one with an annual expenditure of $5 billion, but beyond that very broad comparison, attempts to draw conclusions about a country’s level of military capability from its level of military expenditure should be regarded with considerable scepticism.

ABOUT THE AUTHOR(S)
Dr Sam Perlo-Freeman is the Head of the SIPRI Project on Military Expenditure in the Arms and Military Expenditure Programme.