* The figures of the ‘National Defence’ budgetary item are lower than Russia’s total military expenditure since the latter additionally includes funding for paramilitary services. For more detail, see the SIPRI Military Expenditure Database. Current maintenance of the Russian Armed Forces accounts for about 40%–50% of the allocated funds, while arms procurement accounts for 50%–60%.
** Data based on monthly information from the Russian Ministry of Finance. At the time of writing, summary data for 2020 were not yet available.
Due to inflation and the continuous depreciation of the rouble against major world currencies, military expenditure for 2021–2023 had to be increased. Moreover, the 2020 economic downturn and the sharp decrease in budget revenue imposed a degree of moderation on spending. Apparently, planned military expenditure initially exceeded 10 trillion roubles. Moderation is untenable for long, however. The Kremlin will eventually have to up its military spending over the next ten years regardless of the country’s real economic growth. Incidentally, this applies not only to the armed forces but also to paramilitary services that are part of the Russian defence system (the FSB, Rosgvardiya).
Indeed the ongoing haggling around military spending led to a public squabble between the Ministry of Defence and the Ministry of Finance in October–December 2020. Finance officials proposed cutting the army headcount (financed under the ‘National Defence’ budgetary item) from 1 million to 900,000, extending the duration of service required for an officer to be entitled to a military pension and cutting other financial costs. These proposals saw serious resistance from the Ministry of Defence.
Taking into account how the actual size of the Russian Armed Forces can be estimated at 740,000–780,000 military personnel, a formal commitment not to increase the size of the army to 1 million would be expedient. However, this requires a political rather than a technical decision. Indeed, it would involve a partial revision of the ideological foundations of the Russian political system. These foundations include the idea of a never-ending confrontation with the West and continuity of the Soviet army tradition, as well as the notion of contrasting the Putin era with the perestroika period and the first post-Soviet decade. An army of less than a million would signify a major shift within the Russian system of power. As for early military retirement pensions, it is one of the traditional incentives used to maintain morale and loyalty among the officer corps. Loyalty was already put to the test during the vote for ‘Putin’s Constitution’ in the summer of 2020.
Thus, traditional annual declarations of the successful modernisation of the armed forces are only a smokescreen for the growing shortage of resources needed for their maintenance and upgrading. However, no resources will be commensurate with Russia’s capabilities and objective external threats. The solution implies the need to downsize paramilitary agencies. But that entails changing Russia’s political system and economic model.
The Russian defence industry closes the decade under growing pressure from new US sanctions introduced in November–December 2020. These affect not only arms manufacturing but also civilian production, especially in the aerospace sector. As in the 2010s, the mismatch between the objectives and needs of the Russian leadership is palpable. A prosaic reality of arms development and manufacturing will persist, if not worsen, in the 2020s.
Let’s take a look at the most striking examples. In 2020, given the economic crisis and errors in the organisation of military production amid the pandemic, defence companies accumulated huge debts. Back in the summer of 2019, for example, these companies were said to have more than 2 trillion roubles in debts to Russian banks, 600–700 billion of which was irrecoverable and had to be written off. In January 2020, the problem was declared resolved, although no details emerged. In December 2020, however, it appeared that defence companies had increased their debts to almost 3 trillion roubles, with debts worth 350 billion fully written off and others worth 260 billion restructured. Loans worth another 150 billion roubles are being prepared for restructuring. Thus, the problem of the systemic unprofitability of state-owned defence companies persists.
The Kremlin has two options. One is long-term, seven-year contracts for manufacturing arms, defence technology and military vehicles. These could enable companies to build up stocks of materials and avoid excessive production costs from inflation and other expenses. Option two: greater restrictions on imported goods. The share of Russian production in public and corporate procurement increased from 13.3% in 2019 to 24.2% in 2020; a further increase is planned. The problem is, both options imply that companies can continue with what they are already manufacturing or developing based on borrowed technologies. This will not create room for exponential growth. Russia’s desire to further refrain from participation in the international division of labour is fraught with the same consequences.
Another example is the delay in the adoption of the GLONASS satellite navigation system development programme for 2021–2030 and implementation of other projects. These problems are most likely due to Russia’s limited access to imported electronics, which impedes a new generation of navigation satellites. The government earmarked 480 billion roubles ($6.64bn at the 2020 average exchange rate) for the GLONASS programme compared with the previous edition of the programme (for 2012–2020), which cost 280 billion roubles. That is, the planned expenditure was estimated at more than $9bn at the time of approval; actual spending was equivalent to over $5bn at current prices, given the devaluation of the rouble. Meanwhile, up to 70% of Russian navigation satellites depend on imported electronics. The funds allocated for the next decade will at best suffice to replace the GLONASS system’s satellites, if Russia manages to produce its own electronics and/or get them from other sources.
One more example: the construction of Borei-class nuclear-powered ballistic missile submarines and Yasen-class nuclear-powered cruise missile submarines. In the coming decade, the Russian Navy is expected to receive six Borei- and eight Yasen-class submarines. In the 2010s, it was supplied with four Borei-class submarines and one Yasen-class submarine instead of the originally planned eight Borei– and seven Yasen-class submarines. Moreover, it appears that the Votkinsk Machine Building Plant is ramping up the production of Bulava submarine-launched ballistic missiles (with which Borei-class submarines are armed) at the expense of Yars intercontinental ballistic missiles (ICBM). There is no other feasible explanation for how 2021 will see a reduction in the supply of Yars missiles; previously, up to 16 Yars missiles were delivered annually. Currently, the military are planning to put only 13 missiles on combat alert. That is, Yars missiles combined with Avangard missiles (carried by the Soviet UR-100NUTTKh ICBM, which is now being re-equipped with a new guided bomb unit). Thus, the sums the Kremlin is willing to spend on this segment of the Russian defence industry in the coming years also fall short of actual needs.
It turns out that, in the 2020s, the Russian military industry will face the prospect of either being drained under the burden of debts and underfinanced projects, or of draining Russian taxpayers.