7. Military expenditure

Summary

Military expenditure is an indicator of the amount of
economic resources devoted to military activities. In 1998 world
military expenditure amounted to roughly $745 billion, which
corresponds to $125 per capita on average for total world population.
The economic burden of military activities is indicated by the share of
gross national product (GNP) going into military expenditure. This
share varies between countries and regions but taken as an average of
world GNP it is 2.6%.

World military
expenditure has been on a declining trend since 1987, which shows that
this has been a period of disarmament but probably also to some extent
of increasing efficiency in the use of resources for military purposes.
The decline is an effect both of the end of the cold war and of the
restrictive overall budgetary policies during part of this period. The
reduction in world military expenditure since 1987 is more than
one-third in real terms (after allowing for inflation). The sharpest
cuts have been made in Russia but there have been strong reductions
also in the United States, Latin America and Africa. The only region
where there has been unabated rapid growth is Asia, where military
expenditure has increased by 27% in real terms over the past decade.

During
recent years the decline in military expenditure has slowed down. In
1997 there was a slight increase, and preliminary estimates for 1998
show a reduction of only 3.5%. This slow-down is likely to continue.
The USA, which accounts for more than one-third of world military
expenditure, presented a defence budget plan in 1998 which shows
increased military expenditure during the next few years. The 1999
defence budget of the Russian Federation shows a planned nominal
(including inflation) increase of 75% over actual 1998 expenditures,
but it is far from clear whether this increase will be implemented. In
previous years economic difficulties have led to actual expenditure
being well below the adopted military budget. In Asia the previous
strong growth in military expenditures has slowed down as a result of
the 1997 financial crisis, but they have still not started to decline
even in East Asia, which was most seriously affected by the crisis.
While the volume of arms procurement has been scaled down significantly
due to the reduced purchasing power of their currencies on the world
arms market, the domestic burden of their military expenditure is not
declining.

Most of the countries with
a very high share of GNP devoted to military expenditure are located in
Africa, a continent with many very poor countries and several ongoing
armed conflicts. In 1998 UN Secretary-General Kofi Annan pleaded for
the African countries to reduce their military expenditure to 1.5% of
GDP. Latin America is the continent with the least transparency in
military expenditure. It is difficult to obtain reliable military
expenditure figures for these countries and thus to make proper
assessments of their development. It is clear that the processes of
democratization and reduction of conflict have led to reduced military
expenditure, but the exact nature and size of these reductions are not
clear.

Appendix 7A. Tables of military expenditure

ELISABETH SKÖNS, AGNÈS COURADES ALLEBECK, EVAMARIA LOOSE-WEINTRAUB AND PETTER STÅLENHEIM

Appendix 7A contains tables of military expenditure by region, country and income group.

Appendix 7B. Table of NATO military expenditure

Appendix 7C. Sources and methods for military expenditure data

Appendix 7D. The military expenditure of China, 1989-98

SHAOGUANG WANG

Summary

Chinese military expenditure is known to be higher than
the official defence budget, but there is disagreement among China
analysts as to how much higher it is. SIPRI has commissioned a study to
identify and try to quantify the items of military expenditure outside
the Chinese defence budget. These items include the People's Armed
Police, military pensions, military research, development, testing and
evaluation, subsidies to arms production, and arms imports, and, on the
revenue side, earnings from PLA business activities and from arms
exports, some of which are used for military purposes. The resulting
estimate of Chinese military expenditure, which is an estimate at the
high end, is roughly 75% higher than the official defence budget and
amounts to 156 billion yuan for 1998. This corresponds to 1.9% of GDP
rather than the official figure of 1.1%. This estimate is not expected
to be the final answer on the size of Chinese military expenditure, but
it is an important contribution to the exploration of real Chinese
military expenditure.