World Military Spending: Increases in the USA and Europe, Decreases in Oil-Exporting Countries

Date: Issue 74 - May 2017

Total world military expenditure rose to $ 1686 billion in 2016, an increase of 0.4 per cent in real terms from 2015, according to new figures from the Stockholm International Peace Research Institute (SIPRI). Military spending in North America saw its first annual increase since 2010, while spending in Western Europe grew for the second consecutive year.

World military expenditure rose for a second consecutive year to a total of $ 1686 billion in 2016—the first consecutive annual increase since 2011 when spending reached its peak of $ 1699 billion. * Trends and patterns in military expenditure vary considerably between regions. Spending continued to grow in Asia and Oceania, Central and Eastern Europe and North Africa. By contrast, spending fell in Central America and the Caribbean, the Middle East (based on countries for which data is available), South America and sub-Saharan Africa.

The Top 15 Military Spenders In 2016

The top 15 countries with the highest military spending in 2016 were the same as those in 2015, although there were some changes in their ranking. The 15 largest spenders account for $ 1360 billion, or 81 per cent, of total global spending. Between 2007 and 2016, China has seen the biggest growth in military spending, with an increase of 118 per cent, followed by Russia (87 per cent) and India (54 per cent). In the same period, Italy (–16 per cent), the United Kingdom (–12 per cent) and the United States (–4.8 per cent) were the only countries in the top 15 to see their military expenditure fall. In 2016, total US military expenditure of $ 611 billion is over one-third (36 per cent) of world military expenditure. This is nearly three times the level of China’s spending, which is ranked second. US military spending grew by 1.7 per cent between 2015 and 2016, the first increase after five consecutive years of decline. Despite this slight growth, US military spending remains 20 per cent lower than its peak in 2010. The small upturn in 2016 can be attributed to legislation adopted in 2013 and 2015, which eased the budget limits imposed in 2011. However, given the context of the presidential election and the inability of the US Congress and the White House to reach agreement on a budget to be implemented on 1 October 2016, there is uncertainty about short-term developments in the country’s military expenditure. As a result of an unexpected increase in Russia’s military expenditure in late 2016 and large cuts to Saudi Arabia’s military budget, Russia moved above Saudi Arabia to the position of third largest spender in 2016. India moved from 7th to 5th place after its largest annual spending increase since 2009. Meanwhile, both the UK and Brazil dropped one place in the rankings. The UK fell from 6th to 7th—a move largely attributed to the devaluation of the British pound following the result of a referendum on the country’s membership of the European Union. In Brazil, which went from 12th to 13th position, failure to revitalize an economy deep in recession has seen the country’s military spending decline by 7.2 per cent.

The USA’s Spending Returns to Growth; Saudi Arabia’s Spending Falls Significantly

The United States remains the country with the highest annual military expenditure in the world. US military spending grew by 1.7 per cent between 2015 and 2016 to        $ 611 billion. Military expenditure by China, which was the second largest spender in 2016, increased by 5.4 per cent to $ 215 billion, a much lower rate of growth than in previous years. Russia increased its spending by 5.9 per cent in 2016 to $69.2 billion, making it the third largest spender. Saudi Arabia was the third largest spender in 2015 but dropped to fourth position in 2016. Spending by Saudi Arabia fell by 30 per cent in 2016 to $ 63.7 billion, despite its continued involvement in regional wars. India’s military expenditure grew by 8.5 per cent in 2016 to $ 55.9 billion, making it the fifth largest spender.

The growth in US military expenditure in 2016 may signal the end of a trend of decreases in spending, which resulted from the economic crisis and the withdrawal of US troops from Afghanistan and Iraq. US spending in 2016 remained 20 per cent lower than its peak in 2010. ‘‘Despite continuing legal restraints on the overall US budget, increases in military spending were agreed upon by Congress,’’ said Dr Aude Fleurant, Director of the SIPRI Arms and Military Expenditure (AMEX) program. ‘Future spending patterns remain uncertain due to the changing political situation in the USA.’

Asia and Oceania Military Spending is Ascending in 2016

Asia and Oceania Military spending in Asia and Oceania amounted to $ 450 billion in 2016, an increase of 4.6 per cent on 2015. This is a slightly lower rate of growth than in the previous two years. This lower rate is partially related to the slowdown in the growth of Chinese military spending, which has historically tracked China’s GDP growth. Regional spending increased by 64 per cent between 2007 and 2016, and all but three countries increased their spending. Between 2015 and 2016, military expenditure grew in all sub regions, ranging from a 1.7 per cent increase in Oceania to a 6.4 per cent increase in Central and South Asia. Between 2007 and 2016, East Asia had the largest increase of all sub regions, raising spending by 74 per cent. Five of the top fifteen global spenders in 2016 are in Asia and Oceania: China, India, Japan, South Korea and Australia (in ranked order). China had by far the highest military spending in the region: an estimated $ 215 billion, or 48 per cent of regional spending. This amount is almost four times that of India’s total, which is the second largest in the region at $ 55.9 billion. There are many ongoing tensions in the region: in the Korean Peninsula, between North Korea and South Korea; between China and Japan, over claims in the East China Sea; between China and several South East Asian countries, over claims in the South China Sea; between India and Pakistan; and between India and China. Such tensions help governments to continue to justify the need to modernize their military capabilities, and to drive military spending upwards. On the other hand, economic growth in the region has generally continued, even if sometimes at a lower rate than in previous years, which makes it possible to increase military spending without increasing the military burden on the economy (i.e. its percentage of the GDP). Almost all the countries in the region have kept their military spending as a percentage of GDP at the same level since 2012.

Increases in Europe Linked to Growing Threat Perceptions

Military expenditure in Western Europe rose for the second consecutive year and was up by 2.6 per cent in 2016. There were spending increases in all but three countries in Western Europe. Italy recorded the most notable increase, with spending rising by 11 per cent between 2015 and 2016.

The countries with the largest relative increases in military spending between 2015 and 2016 are in Central Europe. Overall spending in Central Europe grew by 2.4 per cent in 2016. ‘The growth in spending by many countries in Central Europe can be partly attributed to the perception of Russia posing a greater threat,’ said Siemon Wezeman, Senior Researcher with the SIPRI AMEX program. ‘This is despite the fact that Russia’s spending in 2016 was only 27 per cent of the combined total of European NATO members.

Europe at $ 334 billion in 2016, Europe’s military spending accounted for 20 per cent of global military expenditure. The figure is an increase of 2.8 per cent compared with 2015 and is only 5.7 per cent higher than in 2007. Spending increased in all sub regions: Central and Eastern Europe’s military expenditure increased by 2.4 and 3.5 per cent, respectively, in 2016, while in Western Europe spending rose by 2.6 per cent (see table 5). Four of the fifteen largest military spenders in the world— France, the UK, Germany and Italy in ranked order—are in Western Europe. Together, they account for 10 per cent of global military expenditure. In 2016 neither France nor the UK achieved the planned increases in military spending announced in 2015. Germany raised its military spending by 2.9 per cent in 2016, a direct result of Chancellor Angela Merkel’s efforts to push through an increase in the military budget. Italy increased its military spending by 11 per cent. This can be partly attributed to its support for its local arms industry by funding domestic procurement. Central European countries continued to collectively increase their military spending, which was up by 2.4 per cent in 2016 compared with 2015. This represents a return to the level of the sub region’s average 10-year growth rate after a 14 per cent increase between 2014 and 2015. The 2015 increase is explained by a one-off payment for arms procurements made 10 years ago by Poland, the sub region’s largest spender (44 per cent of Central European military spending). Many of the European countries with the largest relative increases in military spending between 2015 and 2016 are in Central Europe. Given the wider regional slowdown, this ongoing rise suggests that the perception of an increased threat from Russia following the Ukraine crisis persists. At 44 per cent, Latvia’s increase in military expenditure in 2016 was the highest in Europe, while Lithuania’s military expenditure rose by 35 per cent (see table 6). In Eastern Europe, Russia’s military spending in 2016 was $ 69.2 billion, an increase of 5.9 per cent over 2015 and 87 per cent compared with 2007. Spending in 2016 was 5.3 per cent of GDP—the highest proportion since Russia became an independent state and the seventh highest military burden globally. This increased spending and heavy burden on the economy comes at a time when the Russian economy is in serious trouble due to low oil and gas prices and the economic sanctions imposed since 2014. It was originally expected and planned that the Russian Government would reduce its spending, including military spending. However, late in 2016 actual spending was pushed substantially higher by a decision to make a one-off payment of roughly $ 11.8 billion in government debt to Russian arms producers. Without this debt repayment, Russia’s military spending would have decreased by 12 per cent.

Ukraine’s military expenditure in 2016 was $ 3.5 billion, a decrease of 3.8 per cent. Between 2007 and 2016, its military expenditure increased by 28 per cent. The small fall in 2016 was due to a reduction in the overall intensity of the conflict in the country. However, fighting flared up several times in 2016 and military spending is planned to increase in 2017, in part for acquisitions of new equipment. Despite ongoing clashes between Armenia and Azerbaijan, military spending in both countries fell for the first time since 2011. Armenia’s spending decreased by 5.5 per cent. Azerbaijan’s military expenditure was heavily affected by low oil prices and fell by 36 per cent to $ 1.4 billion in 2016.

Turkey Increased its Military Spending by 9.7 percent Between 2007 and 2016

Middle East SIPRI is not publishing an estimate of military spending for the Middle East for 2016 as data is unavailable for Lebanon, Qatar, Syria, the UAE (which was the second largest military spender in the region in 2014) and Yemen. For those countries for which data is available, their combined total military expenditure in 2016 showed a decrease of 17 per cent compared with 2015 but a 19 per cent increase compared with 2007. The decrease in 2016 came despite the fact that all countries except Oman were militarily involved in at least one armed conflict in the region. This demonstrates the impact of the fall in oil prices on the economies of several of the region’s major military spenders. The military burden is particularly high in the Middle East. Military spending as a share of GDP, for those countries in the region for which data is available, averaged 6.0 per cent in 2016—almost triple the global average of 2.2 per cent. Oman had the highest military burden in the world, at 17 per cent, followed by Saudi Arabia at 10 per cent. Saudi Arabia’s estimated budget of $ 63.7 billion in 2016 makes it by far the largest military spender in the region and the fourth largest in the world. While Saudi Arabia had been increasing its military spending year-on-year since 2002, its spending in 2016 was a 30 per cent decrease on 2015. By contrast, Iran’s military expenditure decreased by 7.3 per cent between 2007 and 2016, but rose by 17 per cent between 2015 and 2016. The lifting of international sanctions has benefited the Iranian economy, improving incomes and giving the government the freedom to increase military spending. Israel was the 15th largest military spender in the world in 2016. Its expenditure grew by 19 per cent between 2007 and 2016 to $ 18 billion. This figure excludes about $ 3.5 billion in military aid from the USA. Turkey increased its military spending by 9.7 per cent between 2007 and 2016. At $ 14.8 billion, it is the 18th largest military spender globally. However, the figure for actual spending in 2016 is uncertain. Since the attempted military coup in July 2016, detailed data on Turkish military expenditure has become more difficult to find.

Large Falls in Military Expenditure in Many Oil-Exporting Countries

‘Falling oil revenue and associated economic problems attached to the oil-price shock has forced many oil-exporting countries to reduce military spending,’ said Dr Nan Tian, Researcher with the SIPRI AMEX program. ‘For example, between 2015 and 2016 Saudi Arabia had the biggest absolute decrease in spending of $ 25.8 billion.’

The largest cuts in military expenditure in 2016 related to falling national oil revenues were in Venezuela (–56 per cent), South Sudan (–54 per cent), Azerbaijan (–36 per cent), Iraq (–36 per cent) and Saudi Arabia (–30 per cent). Other notable decreases were seen in Angola, Ecuador, Kazakhstan, Mexico, Oman and Peru. Only 2 of the 15 countries with the largest falls in spending in 2016 are not oil exporters. However, a minority of oil-exporting countries, such as Algeria, Iran, Kuwait and Norway, are better equipped economically to deal with oil-price shocks and could continue with their existing spending plans in 2016.