By Lucie Béraud-Sudreau, Research Fellow for Defence Economics and Procurement, and Douglas Barrie, Senior Fellow for Military Aerospace
The Russian defence ministry now wants to conclude its plan for the 2018–25 State Armament Programme (SAP) by mid-2017 as it attempts to protect procurement ambitions from the impact of the country’s shrinking economy.
The follow-on to the 2010–20 SAP was originally due to begin in 2016 but Moscow’s economic problems resulted in the long-term plan being deferred as the regime grappled with immediate issues.
Russia’s economy has stabilised after the shocks of 2014–15: GDP fell by only 0.8% in 2016, compared to 3.7% in 2015, and modest growth is expected this year. Yet the government is committed to fiscal tightening. To that end, federal expenditure will be reined in over the next few years: spending will fall by 1% year on year in 2017, 1.3% in 2018 and 0.33% in 2019. As part of this, military expenditure in current roubles is expected to fall in 2017 and 2018, rising only again in 2019.
In real terms, projected total military expenditure is estimated to fall by 9.5% in 2017 and by 7.1% in 2018, and then by a more modest 1.7% in 2019.
The collapse in the barrel price for oil, combined with Western economic sanctions and the need to substitute a range of sub-systems and components previously sourced from Ukraine, have combined to place defence expenditure under pressure. Some near-term relief, however, has and continues to be provided by delays to projects with originally overly optimistic delivery schedules. Delays in the production of a fifth-generation fighter to meet the PAK-FA requirement and a family of heavy armoured vehicles for the army based on the Armata platform, for example, have resulted in deferred procurement costs with regard to the 2010–20 SAP.
While overall defence expenditure is to be reduced, the defence ministry is attempting to safeguard procurement investment. An interim 2017–19 procurement-funding programme sustains the level of acquisition spending. In protecting procurement, however, the ministry needs to impose larger cuts in defence spending elsewhere. Within the budget, applied research and development (R&D) is cut significantly over the 2017–19 period. If continued, this could prove a false economy. Much of the original R&D for the weapons systems Russia is now fielding can be traced back to the 1980s. The economic turmoil of the 1990s meant little if any funding for significant defence R&D, and this situation only began to improve markedly in the early years of this century.
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