An update on Russian military spending

The costs of Russia's war continue to increase, but inflation helps to balance the budget.

After the start of the fullscale invasion, Russia strictly limited the information it provides on budget spending. As of today, the only detailed source for expenditures are the quarterly budget listings that are published with a few weeks delay. These listings are extremely granular, consisting of tens of thousands of budget lines, but they only cover open spending.

It is easy to calculate the extent of classified spending (by subtracting open spending from total spending), and it is possible to estimate how much of the classified spending is military spending (around 80% in 2024). This makes it possible to understand the extent of Russia’s total military spending, but not exactly what Russia is spending it on.

Even though it doesn’t make a very big difference in most years, Russian “military” spending is not the same as spending in the chapter “national defence”. Even before the fullscale invasion began, a certain share of military spending could be found in other budget chapters, such as social spending, economy etc., leading to higher total figures for military spending than Russia’s “national defence” budget.

Emeritus professor Julian Cooper (Birmingham) is the leading expert on these issues. You can follow him on ResearchGate. I highly recommend his papers on the budget (but also other aspects of Russia’s economy, such as this study on Russian military production published a few days ago). A detailed discussion of Russia’s 2024 budget and military spending by Julian Cooper can be found here.

I have created a simple diagram to clarify what the terms “military” and “defence” mean in the Russian budget. The areas are not really proportional, but should help to understand the different terms. Of course, there is also military and defence spending that is not caused by the war in Ukraine (peacetime spending).

Source: Own diagram based on 2024 budget law draft, data from Cooper 2023.

There are also costs of the war that are not included in military or defence spending (such as money spent on running the occupied territories). Arguably, every single of Russia’s budget chapters is by now one way or the other affected by the war and its consequences. Extra-budgetary funds, regions and businesses are also expected to chip in. This makes it hard to determine the costs of the war in the budget (not to mention the cost to Russia as a whole). But the overall trends are clear.

Source: Own chart based on Russian budget listing, July 2024.

In the chart, I estimate that 80% of secret spending actually belongs to defence spending.¹ Based on that calculation, defence spending was 2.7 trillion rubles in both Q1 and Q2, or 5.3 trillion in the first half of 2024. In most years, the first three quarters account for 60% of defence spending, while the last quarter accounts for 40%. If the pattern holds this year, total defence spending in 2024 will be around 13.3 trillion rubles, or 2.5 trillion rubles more than planned, 6-7% of GDP.² Accordingly, total military spending would be 7-8% of GDP. The GDP shares have not changed much from earlier projections, as higher-than-expected military spending is offset by higher-than-expected nominal GDP.

In the first half of 2024, both classified spending and open national defence spending rose by 36% compared to the same period in 2023, while the rest of budget spending rose by 16%. Since there is military spending outside of the classified budget and the open part of national defence, it is clear that non-war spending more or less stagnated in real (inflation-adjusted) terms, while war-related spending continued to grow as a share of the federal budget.

Equipment costs are rising faster than personnel costs

Some interesting findings from the latest budget listing: Within Russia’s State Programme for Defence (3.9 trillion in 2024), most spending is planned for salaries and compensation (2.1 trillion in 2024).³ This is not the full extent of what Russia pays for its military personnel, but it is still interesting that the sum is not growing as fast: 1.0 trillion rubles in the first half of 2024 vs. 830 billion in the first half of 2023. This is an increase of 25% (from 2022 to 2023 the increase was 120%).

According to Russia’s economy ministry, on average nominal wages in Russia rose 18.7% in H1/2024 vs. H1/2023. If Russian military personnel enjoyed the same increase, it would mean that the number of personnel did not increase much (perhaps by 5%). The empirical value of this observation is not very strong, but it supports the idea that Russia has about as many casualties as it can recruit new soldiers.

Source: Own chart based on Russian budget listing, July 2024.

A small share of spending on military equipment is also included in Russia’s open budget listing (417 billion rubles in the first half of 2024).⁴ This is of course not the actual military procurement, which is part of secret spending and amounts to several trillions of rubles. But the development of open spending on equipment could still give an indication of the general trends: It grew by 46% in 2022, then by 47% in 2023 and now by 54% in 2024. Unlike spending on salaries, which showed a huge increase in 2023 but has since leveled off, the growth of spending on equipment is still accelerating.

Source: Own chart based on Russian budget listing, July 2024.

Finally, it is worth noting the increase in expenditures for military cooperation with foreign states.⁵ This budget line came virtually out of nowhere in 2022. In the first half of 2024, expenditure in this sub-chapter amounted to 270 billion rubles (around $3 billion). Before the fullscale invasion, the budget on military cooperation with foreign states was around 17 billion rubles annually. This increase is apparently related to the war in Ukraine. Taking into account how much Russia is spending on it, this could be connected to support by Iran or North Korea, although it seems puzzling that Russia would publish such a politically sensitive figure, and not classify it.

Source: Own chart based on Russian budget listing, July 2024.

The war keeps getting more expensive

Although the intensity of the war in Ukraine has not changed much over the past year, Russian spending on the war continues to grow - in real terms, as a share of GDP, and as a share of the budget. This may reflect the rising cost of producing new military equipment, especially vehicles and larger systems: Over time, Russia has to shift from refurbishing old tanks, artillery, IFVs, etc. to producing new vehicles, which is much more expensive.

So far, however, Russia can afford the cost increases because budget revenues are higher than expected (whether it can physically organize the additional production capacity, find the right machinery, etc. is another question). In the first half of 2024, budget revenues, especially non-oil/gas revenues, increased due to both economic growth and inflation. In the long run, inflation will also cause problems for the budget: pensions will have to rise, salaries of state employees will have to rise, and also the procurement of military equipment will become more expensive.

One example for this is Russia’s tank manufacturer Uralvagonzavod, which raised the salaries for its workers twice this year: By 12% in May and by a staggering 28% in August. This will affect tank prices. However, Russia’s budget deficit will most likely not be out of the ordinary in 2024 (below 3% of GDP, even with higher than expected military spending).

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In recent weeks, oil prices have fallen rapidly and the outlook for Russian energy exports is weakening. Because of the war, Russia has not rebuilt its reserves in recent years, despite relatively high oil prices. This means that Russia could be vulnerable to an oil price crash. However, the effect of lower oil prices would be felt more in Russia’s external balance than in the federal budget, at least in 2024. As a result, the ruble could fall quickly, pushing up inflation again.

But in the federal budget, there is not that much oil/gas revenue “missing” to complete this year’s plan. As of August 2024, oil/gas tax revenues have reached 7.5 trillion. For the full year, 11.5 trillion were expected in the budget law. Even if the rest of the year is extremely bad and the Russian government only receives another 2 trillion of oil taxes until December, this would mean that oil/gas revenue is just 1% of GDP smaller than expected. The problem could become bigger next year, however, if oil prices remain lower for an extended period of time.

1. Based on the 2024 budget discussion by Julian Cooper, secret defence spending is 8.4 trillion, which is 76% of the total secret spending of 11 trillion rubles.

2. Based on the latest estimate from Russia’s Economy Ministry, which expectes 2024 GDP to be 191 trillion rubles. This estimate is somewhat outdated. GDP is more likely to be around 200 trillion rubles due to higher inflation and growth.

3. Комплекс процессных мероприятий "Обеспечение денежным довольствием военнослужащих, заработной платой гражданского персонала, а также выплата пособий и компенсаций"

4. Комплекс процессных мероприятий "Совершенствование системы материально-технического обеспечения Вооруженных Сил Российской Федерации"

5. Комплекс процессных мероприятий "Обеспечение военного сотрудничества с иностранными государствами"