WARSAW – Russia's financial woes, triggered by cheaper oil and Western sanctions imposed on the country following its military intervention in Ukraine, could affect Russian defense spending in the long-term, local analysts say. The financial slump is mirrored in the plummeting value of the ruble, which hit an all-time low of 79 rubles to US $1 on Tuesday.
On Dec. 4, Russian President Vladimir Putin said the government is aiming to cut budget spending by "at least 5 percent of total spending in real terms." While it is unknown how this will affect the country's defense expenditure, Russia-based experts say long-term consequences for the country's ongoing military modernization efforts could be serious.
The Russian Defense Ministry "spends very little on foreign procurement, and the Russian defense industry is mostly using Russian components and raw materials," said Vasiliy Kashin, project director at the Moscow Defence Brief, which is published by the Centre for Analysis of Strategies and Technologies think tank. "At the same time, the spending will most likely be affected by the general economic crisis, of which the falling ruble is just one small part."
According to the majority of available macroeconomic forecasts, next year "the Russian economy will be in a deep recession, which is likely to be followed by between one and two years of stagnation," Kashin said. The government "has not said anything specific about defense, but budget cuts were mentioned."
With this in mind, some of the Russian military's planned procurements are likely to be postponed, according to the analyst.
"I do not think that the cuts next year will be dramatic, since the government has considerable reserves," Kashin said. "I think they will proceed with the current programs, but postpone some of the new ones, [in particular] those related to the ... Navy."
Commenting on the outlook for the Russian economy, the World Bank said Dec. 10 it is forecasting the country's gross domestic product will increase by 0.7 percent in 2014. ■
Email: jadamowski@defensenews.com.
Jaroslaw Adamowski is the Poland correspondent for Defense News.
