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June 11, 2020

Covid-19 Impact Scenarios on Russia Defense Budget Forecast

COVID-19 is creating substantial uncertainty around the Russian defense budget, with early indications suggesting a severe economic downturn caused by the coronavirus. Budgetary predictions frequently follow GDP projections, currently revised to include the impact of COVID-19.

By GlobalData

COVID-19 is creating substantial uncertainty around the Russian defense budget, with early indications suggesting a severe economic downturn caused by the coronavirus. Budgetary predictions frequently follow GDP projections, currently revised to include the impact of COVID-19. Russia’s defense budget has fluctuated in the past, showing flexibility and resilience when facing economic headwinds to shelter projects and operations. It is challenging to provide a single forecast for the forthcoming years, as the full picture is still unclear. To address these difficulties GlobalData has produced three comparative scenarios up until FY2024: Pre-COVID-19 scenario, GDP Percentage Status Quo scenario, and Austerity scenario.

Pre-COVID-19 Scenario

The pre-COVID-19 scenario is the most optimistic. Here budgetary growth would follow forecasts created prior to the pandemic, growing in line with GDP to US$60.5 billion in FY2024. This is not impossible as the government could spend a far greater percentage of GDP on defense than in the past. Yet, this seems unlikely because the economic impact of COVID-19 will effect Russia’s fiscal ability to put forward a larger budget than has been seen before.

GDP Percentage Status Quo Scenario

The status quo scenario depicts the Russian defense budget maintaining the percentage of GDP allocated to defense prior to COVID-19 but projects a GDP growth slowdown. The pandemic, a collapse in oil revenues due to conflict with Saudi Arabia over production rates, as well as decreased demand due to COVID-19 would cause this. The defense budget was already forecasted to decrease by 0.46% of GDP in FY2021 which may ease the budgetary transition into the post-COVID economy. Russia is heavily invested in numerous long-term procurement projects, many of which will not be cut due to contractual obligations and the need for holistic modernization. Russia is committed to maintaining military superiority and unlikely to give up military development even for a public health emergency.

Austerity Scenario

Russia is facing economic ramifications from COVID-19; due the collapse of oil prices due to decreased demand and from the funding requirement that countering the disease necessitates. GDP growth would be reduced and it would affect the amount being spent on defense. This could lead to a decline in the defense budget in FY2021; the model predicts US$50.7 billion in FY2021. It is likely that the budget would gradually recover to US$56.3 billion in FY2024. Two factors will prevent a collapse of the defense budget: a substantial military presence abroad and contracted costs associated to ongoing procurements.

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