Putin Proposes 22% Increase for Official FY 2006 Russian Defense Budget

Russia plans another substantial increase in defense spending next year to pay for across-the-board military upgrades, development of new weapons systems and improved social benefits for defense-sector employees. DID has noted on occasion the procurement difficulties created by Russia’s budgetary shortfalls. Russia’s land forces have been particularly hard-hit, even as the country attempts to move toward a more professional military.

AFP reports that a draft FY 2006 budget for Russia allocates 668.3 billion rubles (USD $24 billion, EUR 19.5 billion) for spending on national defense, an increase of nearly 22% on this year’s defense budget and a figure equivalent to about 2.75% of Russia’s projected gross national product.

Moscow News goes into greater detail, noting that overall expenditure is earmarked at RUB 4.27 trillion (USD $150 billion), up from RUB 3.05 trillion in 2005. Revenues are forecast at RUB 5.46 trillion (USD $192 billion), up from RUB 3.326 billion a year earlier. The budget surplus is expected to be RUB 776 billion (USD $27.3 billion), equivalent to 3.2% of gross domestic product. Note that the proposed budget relies on continued high world oil prices averaging $40 a barrel.

The draft budget is due to be submitted for approval to parliament later this month. Russian Parliamentary and Presidential elections are due in December 2007 and March 2008 respectively.

The IMF, meanwhile, was less optimistic. A June 2005 report warned that unless Russia can invigorate other sectors of the economy, its growth will be hard to sustain. The IMF noted that “…it becomes a matter of urgency to raise potential growth by reinvigorating structural reforms, which have lost the momentum that they had a few years back… At best, Russia risks missing an opportunity to accelerate growth over the long run; at worst, it may have to undertake a painful and prolonged fiscal tightening if oil prices drop substantially.”