Analysis of Defense Budget Allocation
During 2018–22, Russian defense expenditure as a percentage of GDP averaged 2.62% and is anticipated to increase during the forecast period to reach 2.64%. Over the forecast period, Russian defense expenditure is forecast to grow at a CAGR of 3.5% compared to the estimated GDP growth rate of 1.7%.
The country's per capita defense expenditure increased from $312.2 in 2018 to $329.3 in 2022 and recorded a CAGR of 1.3% during the historic period. The country's population is expected to decrease at a CAGR of -0.2% over the forecast period, and overall defense expenditure is estimated to grow at a CAGR of 3.5%
As the growth of defense expenditure is significantly higher than the expected rate of increase of the country's population the per capita defense expenditure is estimated to register a CAGR of 3.7%, increasing from $329.5 in 2023 to $381.6 by 2027. Despite the contraction of the economy in 2020, due to the COVID-19 pandemic and the oil and natural gas shocks, the defense budget as a percentage of GDP and defense budget per capita are still expected to increase due to an extensive armed forces modernization program.
With the country now being subjected to the most severe sanctions to date over the invasion of Ukraine in February 2022, the country’s GDP is anticipated to demonstrate a relatively flat growth of 1.9% owing to the availability of substantial Russian foreign exchange reserves and National Wealth Fund. Although the new round of sanctions attempts to cut off Russia from a part of its extensive FOREX reserves especially those held in US dollars, British pound, and Japanese Yen, and also attempt to restrict activities involving Wealth Fund, the fact that just about half of these reserves still will be available to Russia will allow it to shore up its economy over the forecast period.
However, post-2027, Russia is likely to increasingly feel the pressure of economic stagnation, and as such with a contracting economy in US dollar terms yet despite economic pressures with irredeemable differences with NATO, Russia is unlikely to cut back on defense spending. This will ensure high defense spending in terms of percentage of GDP and on a per capita basis.
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